Block-diagonal representation of a dualistic agricultural economy and its application in formal modelling: the case of Bulgaria

The paper discusses some of the problems of subsistence agriculture in countries in transition and proposes a methodology for analysis. It demonstrates that approaches which ignore the dualistic agriculture structure cannot provide consistent estimates of the behavioural parameters of the total agricultural sector. The bias is analysed using stochastic simulation and it is concluded that the subsistence agricultural sector has to be explicitly modelled alongside commercial agriculture. This is achieved using the principle of a block diagonal representation of dualistic agriculture, which is then applied to Bulgaria. This allows efficient decomposition of the different effects and provides a reliable representation of the process of agricultural commercialisation. The effects of subsistence farming on overall agricultural performance are presented and interpreted within a Structural Change Agricultural Policy Analysis Model (SCAPAM). The place of subsistence agriculture in transition economies is found to be compatible with optimisation principles and it is concluded that subsistence agriculture plays the role of market clearing. Some extensions of the methodology are discussed.