As the political market is imperfect competitive, the market
equilibrium is theoretically reached by interaction and
compromise among various economic interests. As a result,
policies are inclined to specific economic interests. In other
words, the policy formation process depends on the relative
political influence of each pressure group. The purpose of this
study is to analyze the rice policy in Taiwan from the
perspective of political economy. The specific objectives are
to examine the policy formation process, to evaluate
effectiveness of alternative policies, and to assess the impact
of changes in political and economic environment on the rice
policy. A policy-preference maximizing model is developed to
fulfill the objectives. In the model, the voting behavior of
each group is assumed to be related to its economic well-being.
Additionally, policy makers can adjust policy instruments so
efficiently that welfare is redistributed to maximize political
suptort. Hence,the objective function can be expressed as the
economic surpluses of the pressure groups and the government
budget deficit. The policy instruments which are functions of
policy weights and economic parameters are derived from first-
order conditions. In empirical analysis, unobservable policy
weights are estimated using revealed preference approach in
order to examine the affect of changes in political and
economic environment on the rice policy.