Concluding Comments

The central purpose of PAM analysis is to measure the impact of government policy on the private profitability of agricultural systems and on the efficiency of resource use. Private profitability and competitiveness are likely to be uppermost in the minds of those concerned specifically with agricultural incomes. Social profitability and efficiency are often emphasized by economic planners whose concern is the allocation of resources among sectors and the growth of aggregate income in the economy. Both sets of issues ultimately focus on the incentive effects of policy-part of the difference between private and social profitability-and on how policy incentives might be altered. Through evaluation of private and social revenues and costs, the PAM method is designed to illuminate these related issues of agricultural policy analysis. The approach is particularly well suited to empirical analysis of agricultural price policy and farm incomes, public investment policy and efficiency, and agricultural research policy and technological change.

The PAM approach to policy evaluation advocates a disaggregated view of efficiency effects (as measured by social profitability) and of nonefficiency effects. The analyst can do much in describing the contributions of a particular system to nonefficiency objectives and in quantifying implications for efficiency (aggregate income gains or losses). But it is left to the discretion of each policy-maker to determine whether tradeoffs between efficiency and nonefficiency objectives merit changes in policy or maintenance of incentives to particular systems.

In other approaches to policy analysis, it is desirable to aggregate measures of efficiency and nonefficiency effects into a single measure. Income distribution concerns, for example, can be introduced into the social cost estimates by weighting (with a value less than 1) of the efficiency-determined value of unskilled labor wages. Concerns for food self-sufficiency can be introduced by the addition of a premium to the world market value of output. If these weights were incorporated in the calculations of social profitability, the policy-makers' decision would become automatic and predetermined: encourage all systems with positive social profitability and discourage all systems with negative profitability.

The disadvantage of the aggregate approach lies in its tendency to lump together high-quality information (observable data on prices and input-output relationships) with relatively poor-quality information (implicit weights of society or of policy-makers regarding various prices of inputs and outputs). Moreover, attempts to quantify implicit policy weights presume the existence of some dictatorial policy-maker who speaks on behalf of society. Policy-making rarely occurs in such an environment. Policies are the outcomes of negotiated conflict between interest groups both within and outside the government. Quantitative studies provide improved information and thus increase the probability of good policy decisions. But these decisions, and the tradeoffs implied between efficiency and nonefficiency objectives, are the outcomes of debate based on this information, not inputs into the collection of information.