Urban bias and the political economy of agricultural reform

This paper is an exercise in the incorporation of "political economy" constraints into the analysis of policy reform. It is an illustrative exercise, focusing on the potential distributional consequences of agricultural price reform. In the stylized model discussed in the paper, "urban bias" is reflected in the ability of the urban sector to maintain its standard of living in the face of price reform, through the channel of increased government expenditure on the output of the sector. It is shown that in such a setting price reform may have completely unintended effects. The paper appears in a somewhat unusual format. The first half of the paper presents the arguments in an entirely non-technical, verbal, manner. The second half of the paper presents a formal, mathematical development which makes precise the heuristic and intuitive discussions of the first half.