THE WELFARE EFFECTS OF RICE POLICY AND ITS NATURE IN JAPAN

Abstract

The purpose of this paper is to examine empirically the welfare effects of government's intervention in rice market in Japan and to derive the general nature of the intervention from the empirical findings. The intervention in rice market is composed of price support and acreage control policies which have empirically distinct distributive effects upon the social welfare.
We have the following empirical findings. First, the welfare loss of rice policy was on the average 0.5 trillion yen in monetary terms; in 1978 it amounted to as much as 1 trillion yen. This reveals that the government fails to maximize social welfare. The rice policy cannot be thought to be implemented based upon“the presupposition of Harvey Road”, i.e., the traditionally and implicitly accepted one that government should maximize social welfare. It, however, has some significant functions, one of which, and what is most important, is to transfer income from consumers to producers.
Secondly, transferred income was on the average 1.5 trillion yen each year; in 1977-78 it amounted to as much as 2 trillion yen. Through the rice policy the consumers were the victims and the producers the gainers all the time. This redistribution contradicts“justice in distribution”, i.e., the norm according to which income policy should be implemented. The policy, however, makes a contribution to some political aim.