ABSTRACT
This chapter shows that not only was the average rural income lower than the average urban income, but the rural income distribution was more skewed. It explores the discussion principally to the agricultural sector, rather than the economy as a whole. The chapter argues that in general and particularly in Peru, equity as an overall development objective implies significant horizontal transfers from the urban to the rural sector in Peru. It focuses on the key factors which determine income distribution within the agricultural sector. The chapter examines the microeconomic theoretical tools, by means of the comparative static method, illustrates the importance of the ownership of land as a factor determining the distribution of income. Development economists concerned with income distribution problems agree that in order to improve the income distribution an agrarian reform is necessary. Most agree that agrarian reform affects production, but there is no general agreement on what effects agrarian reform has on agricultural production.
