Prices, common agricultural price policy and personal distribution of income in West German agriculture

Harald von Witzke

European Review of Agricultural Economics, 1979, vol. 6, issue 1, 61-80

Abstract: The objective of this study is to analyse the effect of agricultural prices on the personal income distribution within agriculture. After a theoretical analysis the results of an empirical analysis of the shortrun effects of changes in agricultural prices on the income distribution of farms in the southeast of Lower Saxony are presented and the long-run effects are analysed. Under the assumption that changes in agricultural prices do not affect input or output, the effect on income distribution depends on the income ratio, i.e., the ratio of farmers' income to total receipts. It is generally assumed that, because larger farms have higher incomes and a lower income ratio, an increase of prices will lead to an increase of income disparity in agriculture in the short run. In the empirical analysis this is shown not to be true. In the long run, however, due to several factors, a price increase (decrease) will result in an increase (decrease) of the concentration of income. It is, therefore, concluded that, not only because of its social costs but also because of its adverse effect on incomedistribution, price policy as the main instrument for income policy should be replaced by other measures of income policy.

Date: 1979
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