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.
In this paper, we formulated a simple employment adjustment model and derived the optimal employment adjustments in the form of a cost function which reflects intra-firm workers' utility functions. The key concepts in this model are the contract form which provides for the utility levels guaranteed by firms against each state (this differs from Azariadis' contract which guarantees a constant utilitylevel ex ante), and intra-firm workers' increasing marginal disutility for working hours. The effects of effective demand policies are also investigated by using our model. The main results are the following: (1) when orders deviate from normal levels, profit maximizing firms initially respond by changing working hours, then later adjust employment, holding working hours constant. (2) If utility levels (a function of salaries and working hours) which firms guarantee their employees in the contract are not orders contingent, optimal wages become independent of orders (=output) in recessions and booms. (3) The multiplier effect in our model is smaller than that in the simple man-hour type Keynesian model because of the difference between increments in aggregate labour income resulting from extensions in working hours on one hand, and from increases in the number of employees on the other.
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