Response Surface Analysis and Simulation Models in Policy Choices

This methodological study uses a simulation model to derive response surfaces in the Feed Grain Program. The model approximates an economic system at both micro and macro levels. It estimates response in terms of treasury costs, net farm income, income of participating farmers, and feed grain stock accumulation. Marginal rates of substitution among these response variables are estimated. For example, with a one-cent reduction in loan rate, responses were $71.00 reduction in net income per farm; $134.00 reduction in income of participating farmers; decrease in stock accumulation of 33 million bushels; $48 million reduction in government costs.