A general equilibrium analysis of rural-urban migration under uncertainty

ABSTRACT. This paper analyzes the implications of an exogenous shift in relative prices for an economy that suffers from urban unemployment, as well as uncertainty, in the agricultural sector. Among other things, we show that with agricultural uncertainty, an exogenous shift in relative prices will lower agricultural profit. This result is in sharp contrast with the conventional case of risk-neutrality or certainty where agricultural profit is unaffected by changes in the terms of trade.