united states export subsidies in wheat strategic trade policy or expensive beggar thy neighbor tactic this paper examines the domestic and international impacts of the u s export enhancement program eep for wheat eep uses targeted in kind subsidies to expand u s exports and was designed specifically to compete with subsidized exports from the european community ec we argue eep cannot be welfare improving for the u s even considering strategic trade theory we then model eep as an in kind constrained targeted export subsidy and determine its price quantity and budgetary effects empirical results show that no exporting country gains from eep and that the intended loser the ec is only slightly harmed we find the export subsidies generate only a small increase in u s wheat exports eep is an expensive program based on our estimates for 1988 government cost of additional wheat exports under eep reached 469 per metric ton

the transfer efficiency and trade effects of direct payments all the different ways governments use to provide financialsupport to farmers can potentially distort trade and reduce net economic welfare however there are some types of support that are less trade distorting and more efficient than others this article reports the results of an analysis that examined different policy measures providing support to crop producers to rank them in terms of their effects on a selection of indicators with a particular focus on trade distortion and income transfer efficiency 1 we begin with an analysis of the differences in policy impacts among the three main categories of support provided to crop producers in oecd countries market price support payments based on land use and payments based on use of purchased inputs oecd 2001c that analysis is based on a two region model of equilibrium in the world market for a representative crop analytical solutions to this modelare devel oped to compare the production trade and income effects of the different support measures following procedures used in cahill and in moro and sckokai comparisons are of impact ratios using market price support as the reference category these ratios measure the effect on production trade or farm income of a given joe dewbre jesus anton and wyatt thompson are economists in the agricultural directorate of the organization for economic cooperation and development where the underlying analysis was undertaken the views expressed are our own and not necessarily those of the oecd secretariat or its member countries we thank our secretariat colleagues ken ash carmel cahill wilfrid legg and michele patterson for helpful comments on an earlier draft and stephane guillot for computer programming assistance this article was presented in a principal paper session at the aaea annualmeeting chicago il august 2001 the articl es in these sessions are not subjected to the journal s standard refereeing process 1

the imperial treasury appraisal methodology and regional economic performance in the uk the disparity between the least and most productive regions in the uk is wide by the standards of many other organisation for economic co operation and development oecd economies an important fa

simulation study of the price differentiation effect in a stochastic deteriorating inventory with heterogeneous consumers freshness sensitivity a fixed price policy regardless of expiration date may result in unsold inventory and sales loss price reduction over time as the expiration date approaches motivates customers to purchase all items including the ones that are left with only a short interval until their expiration we conduct a discrete event simulation that captures the main characteristics of this phenomenon results show that a moderate differentiation of price increases profits by 6 a larger differentiation reduces profits profits are the highest for freshness oriented customers a fixed price policy is preferred in an environment of large variance and expected near term expirations

external debt capital flight and political risk abstract this paper explains the simultaneous occurence of large external debts private capital outflows and low domestic capital formation we consider a general equilibrium model in which two government types with conflicting distributional goals randomly alternate in office uncertainty over the fiscal policies of future governments generates capital flight and small domestic investment and induces the government to overaccumulate external debt the model also predicts that left wing governments are more inclined to restrict capital outflows than right wing governments finally we examine how political uncertainty affects the risk premium and how debt repudiation may occur after a regime change

some neglected social costs of government spending in farm programs economic welfare analyses of farm programs typically assume that the direct social opportunity cost of subsidy payments is one dollar per dollar of government spending recent literature suggests that the marginal opportunity cost of a dollar of u s federal government spending is more likely to be in the range of 1 20 to 1 50 this implies that the net social costs of farm programs that involve government spending are significantly greater than the typical estimates in addition the normative efficiency ranking of alternative policies is sensitive to the marginal opportunity cost of government spending

the degree of decoupling of area payments for arable crops in the european union in 1992 the common agricultural policy cap of the european union eu significantly changed direction in the arable crop sector with the so called macsharry reform this reform which reduced cereal intervention prices eliminated output payments for oilseeds and introduced per hectare compensatory payments and a compulsory set aside requirement attached to these payments implied a significant change in the policy incentives to produce in 1999 intervention prices were cut further bringing them closer to world market levels as well as aligning payments of cereals and oilseeds the most recent reform in

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

public sector deficits and macroeconomic performance in the 1980s chronic public sector deficits forced countries to undertake fiscal adjustment the need to face hard choices continues in the 1990s but the problem is not a simple and easily diagnosed one with an obvious solution rather public sector deficits have had widely differing consequences high inflation in some countries low inflation but also low investment and growth in others and in still others no evident short term macroeconomic spillovers this book presents the findings of a world bank research project designed to shed light on the complex dynamics of public sector deficits it includes an in depth examination of eight countries argentina chile colombia cote d ivoire ghana morocco pakistan and zimbabwe these cases are analyzed within a comprehensive theoretical framework elaborated for the study and in conjunction with cross country data from a larger set the book draws the following conclusions the ways chosen to finance deficits money creation debt or arrears go far to explain medium term financial and macroeconomic imbalances but in the short term these relations are blurred deficits tend to be bad for growth they increase financial and price instability and crowd out private investment public saving typically reduces private saving only slightly increasing public saving is a very effective policy instrument for raising national saving fiscal adjustment typically leads to a lower trade deficit and a moredepreciated real exchange rate finally the blame for large systemic public deficits must be placed not on bad luck but on unwise policy choices and conversely sound fiscal policies can set a country on a path leading to stability and growth

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

the effects of policy expectations on crop supply with an application to base updating we develop a dynamic model to assess the effects of policy expectations on crop supply and illustrate the approach with estimates of the effects of base updating in u s crop programs for corn and soybeans in the corn belt the effect of base updating is relatively small because relevant crop alternatives are subject to similar policies and the alternatives are substitutes in production increasing acreage of one program crop to capture future payments from base updating reduces future payments from the alternative crop we also use our model to assess the effect of base updating on acreage response to prices

the effects of farm subsidies on farm exports in the united states we estimate the elasticity of u s farm exports to u s farm subsidies using a gravity model of state level farm exports to 100 major trading destinations for the period 1999 to 2011 our identification strategy exploits the within state variation that is free of endogeneity bias in the levels and trends of farm subsidies and farm exports we find that a 1 decrease in farm subsidies would reduce u s farm exports by 0 40 per annum this equivalently means that the complete abolishment of the farm subsidy program would reduce u s farm exports by approximately 15 3 billion per year importantly we document robust evidence that amber box subsidy programs such as counter cyclical payments and marketing loan gains have the strongest effect on farm exports while green box subsidy payments such as direct payments have negligible effects finally subsidy payments affect exports only in agricultural commodities not in livestock our subsidy elasticity estimates are statistically significant stable and economically meaningful and are vitally needed by u s and global policymakers in the face of critical domestic and international developments

the optimal tariff structure in higher dimensions this paper generalizes to higher dimensions the two good result that the optimal trade policy for a large country is an import tariff a weak form of the optimal tariff requiring that an import export good be most least protected holds under gross substitutability sufficient conditions are obtained for a strong form of the optimal tariff which requires that all imports be more protected than any export and also for the trade tax revenue to be nonnegative in the optimal policy copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the welfare effects of targeted export subsidies a general equilibrium approach a three country model of export subsidies is developed with an exporter an importer and a neutral country which can act on either side of the market when the neutral country is an exporter the country offering a targeted export subsidy always suffers a welfare loss however when the neutral country is an importer the possibility of a paradoxical result that the subsidizing country can gain and the subsidized country can lose is shown to exist and the conditions under which this result occurs are derived the model fails to provide justification on national welfare grounds for widespread use of targeted export subsidies such as the export enhancement program

learning by doing export subsidies and industry growth japanese steel in the 1950s and 1960s abstract the paper examines the japanese steel industry to evaluate the role of export subsidy policies export subsidies can be instrumental in increasing an industry s cost competitiveness in the presence of learning by doing a characteristic of production in the steel industry using a dynamic estimation model this paper identifies a significant learning rate of above 20 with little intra industry knowledge spillover simulations made with the model indicate that the subsidy policy had an insignificant impact on industry growth the paper finds that the export subsidy had a small effect in stimulating industry growth because the estimated steel supply function was relatively inelastic

how decoupled is the single farm payment and does it matter for international trade the extent to which decoupled agricultural support including the european union single farm payment sfp creates production incentives remains unclear we apply an extended version of the standard global trade analysis project model and generate a set of 21 databases that captures a comprehensive representation of domestic support by considering and modeling a range of different assumptions regarding the sfp s degree of decoupling we investigate the sfp s effect on the model s results the results of our analysis reveal substantially different effects that depend on the degree of decoupling and the findings can help validate trade analysis results particularly for developing countries

trade policy with several goods and market linkages abstract in this paper we demonstrate a substantial role for trade policy in a competitive model finding that a an export subsidy may benefit the exporting country b a voluntary export restraint may benefit the importing country and c a countervailing duty may benefit the importing country even if it has no effect on the foreign price of that good these results are in sharp contrast to the conventional wisdom from two good or partial equilibrium models and are derived in a framework of several goods the pattern of substitution and complementarity across goods or market linkages determines the role for trade policy

gradualism versus big bang speed and sustainability of reforms a beneficial reform may be blocked by a majority if it is implemented by a big bang but the same reform may succeed with an optimally designed gradualist approach a gradualist approach can sometimes split opposition force and is in this sense more politically sustainable on the other hand if both approaches are politically preferred to no reform a big bang is often preferred to gradualism in terms of both political support as well as economic efficiency

credit market imperfections and the distribution of policy rents this article shows that credit market imperfections have important implications for the distribution of policy rents in a model with land as fixed factor and credit market imperfections when an area payment is given land rents go up by more than the subsidy on aggregate farms may lose from the subsidy the results depend on the extent to which subsidies have direct and indirect effects on the credit constraints on whether farms rent or own land and on farm heterogeneity

what have we learned from three decades of research on the productivity of public capital the last three decades have witnessed a great deal of research effort devoted to measuring the private output elasticity of public capital the wide range of available estimates have precluded any consensus so far however this paper reconciles the empirical findings of the literature by quantitatively analyzing a sample of 578 estimates collected from 68 studies for the 1983 2008 period using meta regression analysis we show how study design characteristics and publication bias can explain a large fraction of the variation across estimates we find a short run output elasticity of public capital supplied at the central government level of 0 083 which increases to 0 122 in the long run if in addition only core infrastructure at a regional local level of government is considered these estimates are almost doubled the average output elasticity of public capital amounts to 0 106 our results suggest that public capital is undersupplied in oecd economies

production subsidy and countervailing duties in vertically related markets the hog pork case between canada and the united states this paper analyzes u s countervailing import duties aimed at offsetting the effects of a canadian hog production subsidy approximate countervailing duty formulae for two alternative objectives are derived the permissible range of these duties is illustrated and empirical evidence is provided to restore equilibrium at the presubsidy level in the u s hog market a countervailing duty on hog imports suffices this duty should be less than the unit hog production subsidy to restore equilibrium in both the u s hog and pork markets countervailing duties on both hog and pork imports are required such duties should be less than the unit subsidy and the duty on pork should be less than the duty on hogs

the infant export industry argument when actual consumption experiences are required to learn about a commodity s qualities subsidization of infant exporters can be justified as a first best policy measure this paper develops a dynamic model of optimal foreign market cultivation and examines the type and magnitude of trade intervention that is warranted and how this intervention adjusts over time it also focuses on changing production consumption and trade patterns as well as on welfare implications for individuals and society as the subsidization process unfolds international borrowing is allowed and is shown to cushion against severe welfare losses in the early phases of export subsidization l argument en faveur de la protection d une industrie d exportation dans la phase initiale de son developpement quand on ne peut apprecier les qualites d un bien qu en le consommant effectivement on peut defendre comme politique optimale les subventions aux exportateurs dans la phase initiale de production de leur bien ce memoire developpe un modele dynamique de mise en valeur optimale des marches etrangers et examine quel type d intervention est justifiee quelle intensite de support est necessaire et a quel moment cette aide doit etre modifiee a mesure que le temps passe l auteur examine aussi les implications pour la structure de la production de la consommation et du commerce de ce type d intervention ainsi que ses effets sur le niveau de bien etre des individus et de la collectivite l emprunt international permet d amortir le choc de pertes de bien etre importantes dans les phases initiales de la subvention des exportations

do decoupled payments affect investment financing constraints evidence from irish agriculture abstract this paper empirically tests whether decoupled subsidies decrease investment financing constraints faced by farms using a panel dataset from ireland over the period 2005 2010 we test whether the cap decoupled subsidy payments reduce credit constraints by altering the risk profile of farm earnings we test for financing constraints in a neoclassical q model using investment cash flow sensitivities our econometric methodology controls for censoring heterogeneity and endogeneity we find that decoupled subsidies do reduce credit constraints the effect is greater for farms that face higher constraints dairy farmers and younger farms this evidence suggests that over and above the effect on production indicated in previous research decoupling affects farm investment through financial channels

acreage decisions under risk the case of corn and soybeans an acreage supply response model is developed under expected utility maximization the resulting framework is used to specify and estimate a system of risk responsive acreage equations for corn and soybeans in the united states particular attention is given to the truncation effects of government price supports on the distribution of corn and soybean prices also a wealth variable is included in the acreage equations the empirical results indicate that risk and wealth variables play an important role in cornsoybean acreage decisions the analysis also shows that cross commodity risk reduction is important in acreage allocation decisions

speculative storage in imperfectly competitive markets markets for many commodities are characterized by imperfectly competitive production as well as substantial storage by speculators who are attracted by significant price volatility we examine how speculative storage affects the behavior of an oligopoly producing a commodity for which demand is subject to random shocks speculators compete with consumers when purchasing the commodity and then subsequently compete with producers when selling their stocks resulting in two opposing incentives on the one hand producers would like to increase production to capture future sales in advance by selling to speculators while on the other hand they would like to withhold production to deter speculation thereby eliminating the additional supply from speculators in future periods we find that the incentive to sell to speculators can be quite strong potentially resulting in prices sufficiently high to drive consumers from the market furthermore these incentives are non monotonic in the number of producers speculative storage occurs more frequently in a relatively concentrated oligopoly than in the extremes of monopoly or perfect competition

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

intertemporal pricing and consumer stockpiling we study a dynamic pricing problem for a class of products with stable consumption patterns e g household items staple foods consumers may stock up the product at current prices for future consumption but they incur inventory holding costs we model this situation as a dynamic game over an infinite time horizon in each period the seller sets a price and each consumer chooses how many units to buy we develop a solution methodology based on rational expectations by endowing each player with beliefs we decouple the dynamic game into individual dynamic programs for each player we solve for the rational expectations equilibrium where all players make optimal dynamic decisions given correct beliefs about others behavior in equilibrium the seller may either charge a constant fixed price or offer periodic price promotions at predictable time intervals we show that promotions are useful when frequent shoppers are willing to pay more for the product than are occasional shoppers we also develop several model extensions to study the impact of consumer stockpiling on the seller s inventory production and rationing strategies

capital flight and political risk abstract this paper provides the first serious attempt to examine the relationship between political risk and capital flight for a large set of developing countries the outcomes of the analysis show that in most cases political risk variables do have a statistically robust relationship to capital flight once domestic and international macroeconomic circumstances are added at least when the robustness test as proposed by sala i martin is applied we conclude that on the basis of the analysis in this paper we have found support for the hypothesis that political risk leads to increased capital flight

towards an equilibrium level of market reform how politics affects the dynamics of policy change in this article we examine the dynamics of economic reforms that are implemented by incumbent policy makers interested in maintaining their political power we use a sample of 86 countries over a time period going from 1980 to 2001 and find that the achievement of an equilibrium level of market liberalization is highly costly our results are robust to endogenity and model specification

cross subsidization due to inframarginal support in agriculture a general theory and empirical evidence a general theory of cross subsidization due to inframarginal support is developed two sources of output distortion are identified exit deterrence and extramarginal output some firms would not be in business without the subsidy cost savings due to declining average costs are always greater than the losses incurred where price equals marginal cost moreover it is theoretically possible for inframarginal subsidies to expand output more than equivalent fully coupled subsidies empirical analysis of u s dairy subsidies isolates these components of cross subsidization and finds distortions from inframarginal support to be substantial with implications for trade negotiations dispute settlement and policy formulation copyright 2008 oxford university press

optimal two part pricing in a carbon offset market a comparison of organizational types author affiliation murray fulton johnson shoyama graduate school of public policy diefenbaker building university of saskatchewan saskatoon sk s7n 5b8 canada e mail murray fulton usask ca corresponding author james vercammen food and resource economics and sauder school of business 2053 main mall university of british columbia vancouver bc v6t 1z2 canada e mail james vercammen ubc ca acknowledgment the authors would like to thank tom ross and ralph winter for valuable comments on an early version of this article as well as the southern economic journal editor and two anonymous reviewers the usual caveats apply 1 introductionone of the consequences of the kyoto protocol kp and the increased focus on the role of greenhouse gases ghgs in climate change is that market based approaches to reducing ghg emissions are being actively developed in europe the european union eu operates an emissions trading scheme ets 1 while in the united states the chicago climate exchange ccx trades carbon offsets among exchange members 2 in canada a number of provinces have announced plans for carbon trading schemes four of them have joined the western climate initiative wci a consortium of canadian provinces and states developing a regional cap and trade system wci 2008 the wci and the regional greenhouse gas initiative rggi a consortium of northeastern and mid atlantic states see rggi 2008 are part of the international carbon action partnership a group of countries and regions from around the world that has formed to actively pursue the development of mandatory cap and trade systems in carbon 3the agriculture and forestry sectors are likely to be important suppliers of carbon offsets to the carbon market both through carbon sequestration activities for example the storing of carbon in the soil or in trees and through activities that reduce ghg emissions for instance estimates made by the united states at the time the kp was being negotiated projected that forest cropland and grazing land management sinks could have accounted for about half of u s reduction commitments u s department of state 2002 in canada the federal government estimated that agricultural and forestry sinks could provide in the order of 15 20 million metric tons of carbon offsets relative to a total of 270 300 million metric tons of reductions required under the kp government of canada 2005 food and agricultural organization fao estimates indicate that dryland soils in the world could sequester somewhere in the range of 12 000 16 000 million metric tons of carbon fao 2004 in the case of agriculture since carbon offsets are sold in units that are much larger than most individual farmers can supply carbon sequestration from a number of producers must be aggregated to fulfill contracts 4 as a consequence market intermediaries or aggregators as they are known are emerging to perform this economic function some of these aggregators are organized as for profit firms while others are organized by farmers associations examples of for profit firms are as follows c green aggregators ltd a privately owned company that contracts with farmers in manitoba saskatchewan and alberta for carbon sequestration the carbon they acquire is sold on the ccx c green aggregators 2008 and agcert international an irish company founded to generate emission reductions from livestock farms agcert international 2008 much of agcert s sales of carbon credits has been direct to individual emitters on the producer association side the iowa farm bureau has created agragate climate credits corporation to aggregate carbon credits for sale on the ccx agragate climate credits corporation 2008 agragate administers the project transacts trades on the exchange and distributes earnings to project participants

restricting the market for quota an analysis of tobacco production rights with corroboration from congressional testimony regulatory programs that restrict output levels often impose restrictions on the transfer of rights to produce or to use particular inputs in this paper we use a unique cross section time series data set from north carolina to quantify the welfare effects of transfer restrictions for poundage quota under the u s flue cured tobacco program we find that the deadweight costs of such restrictions are small but that the distributional effects are substantial we analyze congressional testimony on quota transfer legislation and conclude that our estimates of the distributional effects are consistent with expressed views of market participants

the economic effects of supply controls the simple analytics of the u s peanut program a gricultural commodity programs employ a wide variety of policy tools to regulate u s agriculture price supports are the most common form of intervention but rights to sell at the supported price are allocated very differently under different commodity programs under recent feed grain programs for example the right to sell at the supported price is linked to acreage set asides agreements not to produce on certain acres in other programs sales by individual farmers are controlled under marketing orders sponsored by the u s department of agriculture usda 2 a third method is through permanent maketing quotas that directly limit output only two major commodity programs those for tobacco and peanuts currently allocate the right to sell in this way the peanut program is the subject of this article 3

was there policy reform evolution of eu domestic support for processed fruits and vegetables policy reform in agricultural markets is often associated with less government regulation and expenditures or a shift towards more efficient interventions the european union eu adopted major policy changes for processed fruits and vegetables in 2001 and again in 2008 and we employ a simulation model to examine the effects of the three policy regimes in place before and after each of the changes our analysis incorporates the heterogeneity of processing firms in the eu and considers how they responded to the different policy regimes simulation results indicate that the eu subsidies increased eu tomato production by 3 8 for the regime that began in 2008 and 9 1 for the regime that began in 2001 compared to no subsidies the policy regime that was in place from 2001 through 2007 led to the greatest distortions in global processing tomato markets in part because it directed more of the benefits to eu growers and less to eu processors and consumers thus changes in 2001 reformed policy by redistributing gains within the eu while changes in 2008 reformed policy by reducing distortions in global markets

the catalytic effect of lending by the international financial institutions for many less developed countries ldcs and countries in transition cits external financing is frequently an effective constraint on economic growth and development capital inflows may be used to overcome shortages of domestic saving thereby permitting higher levels of investment as well as shortages of foreign exchange thereby permitting larger quantities of imports

how much do distortions affect growth abstract this paper presents a simple endogenous growth model with two types of capital which can display sizeable long run growth effects of distortionary policies the model applies to many different types of distortions of relative prices common in developing countries such as differential taxes and tariffs black market exchange rates and price controls the model shows that a subsidy to one type of capital financed by a tax on another capital good lowers growth a measure of the variance of relative prices of investment goods across sectors has a negative and statistically significant effect on growth

a theory of capital controls as dynamic terms of trade manipulation we develop a theory of capital controls as dynamic terms of trade manipulation we study an infinite horizon endowment economy with two countries one country chooses taxes on international capital flows in order to maximize the welfare of its representative agent while the other country is passive we show that a country growing faster than the rest of the world has incentives to promote domestic savings by taxing capital inflows or subsidizing capital outflows although our theory of capital controls emphasizes interest rate manipulation the pattern of borrowing and lending per se is irrelevant

economic reform and dynamic political constraints in this paper we examine the impact of political constraints on economic reform plans with special reference to the transition from centrally planned to market economies we analyse the problem of an agenda setting reform minded government facing a bureaucracy or industrial sector for which allocative efficiency requires redundancies and an increase in work intensity the government also tries to minimize the rents conceded to its heterogeneous workforce we examine two types of political constraints unanimity rule and majority rule both in a one period and a two period horizon the main results are the following first of all we show how adverse selection and time consistency may generate the widely observed feature of gradualism as an ingredient of an optimal reform second under a majority rule it is shown to be possible for the government to obtain a majority vote for a reform scheme that intertemporally hurts majority interests indeed the government can improve rent extraction through the strategic use of the threat of future proposals the group which expects to be in the minority tomorrow may accept concessions while its votes can be used to extract rents from another group these results suggest that in a dynamic context democratic constraints should not be overestimated as an obstacle against efficiency enhancing economic reforms the results of this paper may throw some light on the political economy of current reforms in eastern europe governments and political decision makers in general always face political constraints when elaborating reform proposals they know that the need to overcome potential opposition from various groups of the population constrains proposals for change political constraints vary depending on the specific institutional structure of society and are clearly different under a military dictatorship than under a parliamentary democracy the role of political constraints seems particularly important in eastern europe today where new democratic governments face the huge task of achieving the transition to a market economy while the introduction of democracy may have removed some important obstacles to economic change namely the veto power of a powerful nomenclatura under communist one party rule fears are expressed that it could potentially jeopardize economic reforms which may during the transition period hurt a majority of the population what can economic theory tell us about optimal economic reform under political constraints this paper starts addressing this ambitious question by looking at structural reform focusing on a restructuring of economic sectors which requires massive redundancies and a significant rise in labour productivity our model illustrates the case of planning

rationalizing agricultural export subsidies export subsidies are an important form of agricultural policy especially for large traders such as the united states and the european community a number of small countries also use export subsidies in effect e g saudi arabian wheat or canadian dairy products in that the domestic price is set well above world levels and surplus production is dumped onto the world market a number of recent contributions to trade theory have argued that export subsidies can be welfare enhancing for the subsidizing country and by implication that the policy choice is consistent with the hypothesis that a benevolent government is pursuing pareto efficiency in the present paper we examine these arguments and present an alternative explanation of export subsidies utilizing the concept of efficient redistribution becker gardner 1983 in standard trade models arguments in favor of global export subsidies arise from failure to exploit market power in another good itoh and kiyono feenstra itoh and kiyono use a threegood model to show that subsidies on marginal goods defined as goods not exported at all or exported in small quantities can increase welfare in the subsidizing country a subsidy on marginal goods causes their production to increase and the supply of nonmarginal goods to decrease thereby raising the price of the nonmarginal goods and increasing the exporter s terms of trade feenstra also employs a threegood model and demonstrates that it is possible for the pattern of substitutability and complementarity across goods to allow subsidies to increase welfare the necessary condition is that the subsidized export be a stronger substitute for another exported good or a stronger complement for an imported good in the subsidizing country than abroad the export subsidy increases welfare by improving the terms of trade in the other imported or exported good the distortion in feenstra s model is the failure to exploit market power in the second or third market as an alternative to global export subsidies abbott paarlberg and sharples aps have examined targeted export subsidies and found that in some circumstances they can be welfare improving dutton later showed the aps result arises because they first constrain the export tax to the rest of the world to be zero so that it becomes theoretically possible for the best export tax to the targeted country to be negative the aps result hinges on differences in import demand elasticities and the exporting country s use of market power in order to price discrim

disentangling the consequences of direct payment schemes in agriculture on fixed costs exit decisions and output this paper goes beyond orthodox considerations of direct payment effects on agricultural output by highlighting the role of subsidies in affecting individual producers ability to cover fixed costs and in distorting the volume of aggregate production and net trade by implicitly discouraging exits the theoretical model considers both taxpayer and consumer financed decoupled direct payment schemes and compares them to a coupled production subsidy in terms of possible producer responses to direct payments the paper proposes an analytical framework of production decision making in the presence of a stochastic distribution of fixed costs across representative farms the paper shows that decoupled payments in theory can have a larger effect on output than coupled payments the model explicitly recognizes three consequences of domestic support a induce exit or entry b bias production incentives to domestic markets and c cross subsidize export in global markets an empirical model of the u s wheat sector is developed to illustrate the relative potential impacts of coupled versus decoupled payments on output through the effects on a farmer s ability to cover fixed costs and hence exit decisions

panel data estimation techniques and farm level data models econometric models wishing to estimate relevant parameters for agricultural policy analysis are increasingly relying on unbalanced panels of farm level data since in the agricultural economics literature such models have often been estimated through simplified approaches in this paper we try to verify whether the adoption of more sophisticated panel data techniques may impact the estimation results for this reason the policy model by moro and sckokai 1999 has been re estimated using techniques recently developed in the econometric literature the preliminary results show a strong impact on the estimations this seems to suggest that the adoption of proper panel data techniques is likely to be very important in order to obtain reliable estimates of some key policy parameters

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

storable good monopoly the role of commitment we study dynamic monopoly pricing of storable goods in an environment where demand changes over time the literature on durables has focused on incentives to delay purchases our analysis focuses on a different intertemporal demand incentive for consumers the key force on the consumer side is advance purchases or stockpiling this stockpiling motive can be present in the case of standard durables as well in environments unmodeled in the prior literature we show that if the monopolist cannot commit then prices are higher in all periods and social welfare is lower than in the case in which the monopolist can commit this is in contrast with the durable goods analysis in the literature on the coase conjecture

domestic support and border measures for processed horticultural products in horticultural markets trade barriers often apply to the processed products whereas domestic support applies to farm produced raw commodities here we assess the effects of such trade barriers and domestic support by simulating the effects of policy reform on global processing tomato markets which are faced with modest processed product tariffs and high domestic support in the european union eu both protection and eu subsidy drive down world welfare but we find that reducing import tariffs for tomato products would yield greater effects on markets and larger welfare impacts outside europe than would reductions in eu domestic support copyright 2008 oxford university press

the impact of cap reform on farmers plans for the future some evidence from south west england this paper considers farmer intentions following the implementation of the 2003 cap reforms identifies the extent to which these plans have been influenced by the introduction of the single payment scheme sps in 2005 and considers the implications in terms of likely structural change i e changes in the deployment of land labour and capital the analysis uses data from a large sample survey of farmers in south west england and the results indicate that cap reform is not stimulating rapid agricultural restructuring rather it appears to be reinforcing many existing trends towards diversification and an increasing polarisation between the largest and smallest farms cap reform is impacting unevenly on the farm community and different farming situations are associated with different types of reaction market signals may become a more powerful driver of farmer behaviour in which case the 2003 reforms will have proved successful in providing farmers the freedom to farm without coupled subsidies on the basis of the results presented in this paper though only a minority of farmers seem both well placed and well disposed to exploit such opportunities

estimation of moments and production decisions under uncertainty the purpose of this paper is to examine production decisions under output price uncertainty using a nonparametric estimation technique to estimate the first four moments of the unknown price distribution and applying duality we provide a simple empirical framework for the analysis of supply and demand decisions under price uncertainty the model is used to examine the importance of higher moments in the firm s production decisions and to investigate underlying attitudes toward risk

efficiency of decoupled farm programs under distortionary taxation when lump sum taxation is not feasible decoupled transfers to farmers which require raising government revenue will entail welfare loss somewhere in the economy assuming the government s objective is to assure a given welfare level for farmers we show that when decoupling is possible free trade is always superior to some tariff protection for a small country even under distortionary taxation as expected for a large country there is scope for an optimal tariff policy that improves the terms of trade however we show a separation between the exercise of market power through an optimal tariff and the interaction of distortionary taxation with transfers to farmers we conclude that decoupling is usually desirable even in a distorted economy in which lump sum taxation is not feasible

fiscal conservatism as a response to the debt crisis abstract in this paper we develop a model in which social conflict and adjustment costs induce delayed inflation stabilization we show that the longer this delay is the less demanding are the conditions that some groups will accept in order to stabilize in the context of the latin american debt crisis our model gives a rationale for the time lag between the outset of the crisis and the implementation of reform programs as well as for the strongly conservative nature of those that are currently being implemented

storability market structure and demand shift incentives we consider a two period model in which buyers can store a good by purchasing in advance of consumption so as to realize potential gains from intertemporal arbitrage we find that storability introduces a kink in the aggregate period 1 demand when supply is oligopolistic quantity setting and consumers are sufficiently patient storage cost is relatively low each firm has a strong current incentive to capture future market share from a rival as a result in equilibrium the price path is increasing and there is rational in advance purchase by buyers in contrast the monopoly and perfectly competitive markets exhibit no such price dynamics intermediate storage costs result in multiple equilibria with at least one that involves advance purchase and one that does not

domestic farm policy and the gains from trade reply a general equilibrium model is used to demonstrate that in the presence of domestic subsidies trade can be welfare reducing relative to autarky mcdonald s comment claims that trade is always welfare improving with domestic production subsidies he states that when deriving a no gains from trade point with production subsidies schmitz sigurdson and doering ssd 1986 1988 and anania and bohman ab mistakenly confuse the overall welfare effects of a production subsidy with the welfare effects of free trade first we show that ab made the correct welfare comparison using a partial equilibrium model and then extend the results using a general equilibrium model

modeling the reforms of the common agricultural policy for arable crops under uncertainty the size of the insurance and wealth effects of a change in the common agricultural policy cap for arable crops is estimated the impact of price uncertainty is accounted for in the specific decision making structure of the european union eu arable crop producers under nonlinear mean variance risk preferences a system of output supply input demand and land allocation equations is estimated on a sample of italian specialized arable crop farms the simulation of the impact of the recent reforms confirms that farmers output responses are consistently affected by the size of the insurance and wealth effects

production incentives from static decoupling land use exclusion restrictions many agricultural support payments are based on past production with restrictions on how land may currently be used when support payments to field crops are analyzed in a static framework they do not directly impact current production decisions however over time as relative profits change these payments affect current output the payments may keep land in less profitable production of program crops through restrictions prohibiting potentially more profitable endeavors such as cultivating fruits and vegetables these payments have the potential to lead to production and trade distortions similar in magnitude to the distortions associated with direct production subsidies

targeted export subsidies as an exercise of monopoly power a country with monopoly power in its export good normally benefits from an export tax however if it exports to two countries and the tax on exports to one is suboptimal then it may be best to subsidize exports to the other this is more likely the smaller is the import demand elasticity in the country being taxed suboptimally and the larger the elasticity in the other it is also more likely the larger are exports to the first and the smaller are exports to the other finally it is more likely the less elastic is home export supply

risk aversion and yield uncertainty in duality models of production a mean variance approach a duality model of production is developed that endogenizes stochastic output decisions under risk aversion the model incorporates both yield and price uncertainty and nonlinear mean variance risk preferences this permits modeling of the firm s expected output supply and input demand decisions under risk and also in principle the firm s output variance decisions the duality model is tractable for empirical research

taxes and subsidies in vertically related markets in the framework of a two country two good partial equilibrium model where one of the commodities the bulk commodity is an intermediate input in the production of the second good the processed good we assume that the government wishes to transfer income to both bulk commodity and processed good producers our analysis is concerned with efficient redistribution the instruments are subsidies or taxes and there is an opportunity cost of public funds we use the targeting principle to characterize the set of optimal subsidies or taxes applied on both the bulk commodity and the final good in this vertically related market structure the theoretical analysis is illustrated using the example of cereals the bulk commodity and pork and poultry the processed good in the european union

price support acreage controls and efficient redistribution this study is concerned with the combination of target price and acreage controls as the two major mechanisms of farm policy acreage controls are shown to enhance the efficiency of redistribution under a target price program more specifically this study demonstrates that if the traditional cobb douglas production function is assumed acreage controls do not enhance the efficiency of target price programs in the process of redistributing income to the farm sector the study proves that if the elasticity of substitution between land and all other inputs is less than one then the income redistributional costs are likely to be reduced moreover by using an empirical estimate of the elasticity of substitution and farm data for the time period 1984 88 this study demonstrates that acreage control programs have drastically reduced the deadweight losses associated with income redistribution flowing from target price programs these results lend strong support to the public choice notion that politicians favo

the production effects of agricultural income support policies under uncertainty this analysis decomposes the production impacts of income support programs into wealth insurance and coupling effects under the usual assumptions about preferences the wealth and insurance effects of many support programs increase optimal input levels even for supposedly decoupled programs if the program is coupled in the usual sense then all three effects often act in the same direction it is concluded that studies of trade and domestic policy reform in stochastic environments should consider insurance and wealth effects the derivative conditions required to obtain results are also subjected to scrutiny simulations for an iowa corn producer confirm the comparative statics

benefit cost analysis of non marginal climate and energy projects conventional benefit cost analysis incorporates the normally reasonable assumption that the policy or project under examination is marginal among the assumptions this entails is that the policy or project is small so the underlying growth rate of the economy does not change however this assumption may be inappropriate in some important circumstances including in climate change and energy policy one example is global targets for carbon emissions while another is a large renewable energy project in a small economy such as a hydropower dam this paper develops some theory on the evaluation of non marginal projects with empirical applications to climate change and energy we examine the conditions under which evaluation of a non marginal project using marginal methods may be wrong and in our empirical examples we show that both qualitative and large quantitative errors are plausible

optimal policy toward international factor movements with a country specific factor abstract this paper examines the optimal taxation of factor movements in a three factor model where two factors are potentially mobile results emphasize the role of substitutability or complementarity between factors in determining the optimal pattern of factor flows in particular a result analogous to the ramaswami result on the desirability of factor importing over factor exporting will hold if factors are complements but may not hold if they are substitutes also a capitalexporting country that cannot tax imported labor should allow labor imports when capital and labor are substitutes but may not allow labor imports if they are complements

implications for food production land use and rural development of the european union s single farm payment indications from a survey of farmers intentions in germany portugal and the uk abstract the 2003 reform of the european union s eu common agricultural policy introduced a decoupled income support for farmers called the single farm payment sfp concerns were raised about possible future land use and production changes and their impact on rural communities here such concerns are considered against the workings of the sfp in three eu member states various quantitative studies that have determined the likely impact of the sfp within the eu and the study countries are reviewed we present the results of a farm survey conducted in the study countries in which farmers responses to a decoupling scenario similar to the sfp were sought we found that little short term change was proposed in the three rather different study countries with only 30 of the farmers stating that they would alter their mix of farm activities furthermore less than 30 of all respondents in each country would idle any land under decoupling of those who would adopt a new activity the most popular choices were forestry woodland and non food crops

decoupled farm program payments are really decoupled the theory lump sum transfers to farmers are commonly believed to affect the production choices of farmers in the presence of risk and uncertainty this paper shows that if farmers have off farm investment and employment opportunities production decisions are decoupled from lump sum subsidies in the presence of risk and uncertainty our results are reconciled with existing results by showing that previously identified production adjustments are portfolio adjustments

sales and collusion in a market with storage sales are a widespread and well known phenomenon documented in several product markets this paper presents a novel rationale for sales that does not rely on consumer heterogeneity or on any form of randomness to explain such periodic price fluctuations the analysis is carried out in the context of a simple repeated price competition model and establishes that firms must periodically reduce prices in order to sustain collusion when goods are storable and the market is large the largest equilibrium profits are characterized at any market size a trade off between the size of the industry and its profits arises sales foster collusion by magnifying the inter temporal links in consumers decisions

the decoupling of farm programs revisiting the wealth effect recent reforms of agricultural policies in developed countries have introduced direct payments as replacements for traditional production enhancing instruments whereas these new instruments can in principle influence production through several channels current empirical studies show no significant impact on production direct payments mainly increase land values in this article we revisit the evaluation of the coupling effects passing through the wealth of agricultural households the initial wealth of these agents while mainly being in the form of land asset holding is always assumed to be fixed to the contrary we show theoretically and through an empirical simulation exercise that once the impact of farm programs on initial wealth is properly accounted for the measure of the coupling effects is not as negligible as found in previous studies copyright 2010 oxford university press

farm income support with minimal trade distortions abstract the stalemate in the gatt negotiations on agriculture is due to us insistence on the elimination of all subsidies while the european community and japan demand the right to support farmers this paper presents an alternative called production entitlement guarantees pegs that allow countries to satisfy farm support objectives yet minimize trade distortions pegs involve a limit on production receiving payments only the removal of all other forms of trade distorting market interventions is required such that consumers pay world market prices pegs would be negotiated and bound in the gatt and represent a politically acceptable method of supporting farm incomes

on the european responsibility in the agricultural multilateral trade negotiations modelling the impacts of the common agricultural policy the present round of multilateral trade negotiations is still deadlocked over agricultural trade the european union eu is urged by its trading partners to open its agricultural markets economic evaluations of trade liberalisation scenarios unanimously conclude that a substantial opening of agricultural markets is required for a successful welfare improving doha round in this paper we perform new evaluations to identify precisely the contributions of the european farm policy and to examine the robustness of these evaluations in the representation of this complex policy using the same specifications as in major previous studies our first simulations show that the eu has a major responsibility in delivering significant gains to the developing countries on the other hand when we conduct the same experiments with a more relevant calibration and modelling of the european farm policy instruments the gains that these developing countries may reap from the eu liberalisation are considerably reduced accordingly the current charge against the eu is simply inopportune

marketing quotas and random yields marginal effects of inframarginal subsidies on peanut supply the u s peanut program restricts domestic sales with poundage quota but allows surplus production to be exported or crushed empirical analysis of north carolina peanut production reveals that the marginal and lower price received by production above quota that is the world price is far more important in determining acreage than is the inframarginal subsidy of the quota support price

plan and market in china s agricultural commerce this article examines interactions between markets and state commercial planning in the context of china s agricultural sector it begins with a discussion of recent trends in agricultural planning and commerce in china and then presents a theoretical model that analyzes the way that a mixed commercial system of the sort observed in china functions the theoretical analysis suggests that a mixed system is sustainable and can have desirable efficiency and distributional effects markets however limit the range of sustainable plans and in the presence of markets state planning may no longer directly influence production and consumption behavior

international trade and capital mobility between diversified economies abstract this paper reconsiders and simplifies the theory of international trade with foreign investment while concentrating on significant gaps in the analysis of the globally diversified case where both countries of the two commodity two factor model remain incompletely specialized the analysis goes beyond previous literature by 1 deriving an important condition for stability of equilibrium 2 investigating the effects of import tariffs and foreign investment taxes on the international allocation of capital 3 examining the actual signs of optimal first best and other tariffs and taxes and 4 developing new and plausible conditions for existence of global diversification

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

tariff wars in the ricardian model with a continuum of goods this paper describes strategic tarichoices within the ricardian framework of dorn busch fischer and samuelson 1977 using ces preferences the optimum tarischedule is uniform across goods and inversely related to the import demand elasticity of the other country in the nash equilibrium of taris larger economies apply higher tarirates pro ductivity adjusted relative size gdp ratio is a su cient statistic for absolute produc tivity advantage and the size of the labor force both countries apply higher tarirates if specialization gains from comparative advantage are high and transportation cost are low a su ciently large economy prefers the ine cient nash equilibrium in taris over free trade due to its quasi monopolistic power on world markets the required threshold size is increasing in comparative advantage and decreasing in transportation cost i discuss the implications of the static nash equilibrium analysis for the sustainability and structure of trade agreements

behavioral incentives equilibrium endemic disease and health management policy for farmed animals the article develops a dynamic capital valuation model in which farms can act with farm varying cost to increase the probability of avoiding an infectious endemic animal disease multiple endemic disease equilibria can exist and the one with the largest set of action takers is socially optimal costly capital markets are shown to be a factor in determining the extent of disease frictions such as dealing with a veterinary public health bureaucracy can enhance social welfare by encouraging precautionary biosecurity actions technical innovations can reduce social welfare and a disease indemnification scheme is also studied suggestions for empirical implementation are provided

can the small dairy farm remain competitive in us agriculture smaller dairy farms in the us are observed to have higher costs than larger farms and whether those higher costs are due to technology or inefficiency has implications for policy to address the small farm if high cost of production on smaller farms is due to a higher cost frontier then to make small farms competitive would require research to devise and design technology that is suitable for small farms if instead high cost is due to inefficiency then educational approaches are needed to ensure small dairy farms use technology efficiently to determine the cause of higher costs on small farms the cost of milk production by farm size was decomposed into frontier and efficiency components with a stochastic cost curve using data on usa dairy farms although the frontier cost of production decreases with farm size that cost reduction is not as pronounced as a cost curve that includes inefficiency the higher cost of production on many smaller farms is caused by inefficiency rather than technology

quotas without supply control effects of dairy quota policy in california unlike the federal milk marketing order system california s system includes a milk quota program oddly this quota restricts neither production nor marketing in aggregate the quota program leads to more milk production than a typical marketing quota but less milk than blend pricing without the quota the california program generates more producer surplus and smaller welfare losses than a federal style program without quota when class 1 milk sales expand production expands less under the quota program than with blend pricing without a quota finally increases in aggregate quota lower production because they lower the marginal price of milk facing producers

economic behavior under uncertainty a joint analysis of risk preferences and technology a method is developed to estimate jointly risk preferences and technology under general conditions the approach is illustrated in an application to the analysis of u s corn soybean acreage decisions over time the results provide useful information on the nature of farmers risk preferences and on the influence of price risk and production risk on acreage allocation and farmers welfare copyright 1996 by mit press

welfare implications of water scarcity higher prices of desalination in this paper we evaluate the welfare implications of shortages in renewable resources and investigate the effects of cross subsidization on these shortages we set up a stochastic dynamic programming model in which a benevolent supplier allocates the resource for multiple user groups subject to revenue and resource constraints the supplier also has access to an external source that can be utilized at a certain cost the solution to the model gives the optimal sectoral prices and demand for the external source we find out that saving budget surplus during periods of scarcity allows the planner to charge prices below average costs when the resource is abundant using data from turkey we simulate our dynamic model to quantify the implications of cross subsidization on water use across user groups

the impact of decoupled payments on farm choices conceptual and methodological challenges abstract in this paper we review the methodological framework for analysing decoupled payments in models of agricultural production market and technological uncertainty farm efficiency credit constraints farm household choices involving extra agricultural decisions policy uncertainty and long run impact of decoupling on investment and land values are the relevant issues that should be pursued by methodological and empirical analysis future research should refine the analysis of decoupled payments mainly trying to provide results that can be useful for policy simulation to bridge the gap between analysis at the individual level and sector policy models

output and input bias effects of u s direct payments this study examines the national effect of u s direct payments on the extent and direction of biased technical change on u s agriculture we also assess the economic significance of the estimated bias effects for economic policy modeling endeavors involving a reduction of domestic support payments a two outputs livestock and crops and four inputs labor capital land and material translog cost function was estimated from national time series 1948 2011 data results indicate that payments do not induce output biased technical change we do find evidence of hicksian bias that is land using and material input saving attributable to support payments global computable general equilibrium simulations suggest that price and output effects of discontinuing direct payments are 1 4 to 1 3 the size once the bias effects are incorporated

hidden costs of supply management in a small market canada regulates its dairy and poultry industries through supply management the supply management programs use target prices production quotas and import tariff rate quotas to raise domestic prices canadian supply managed producers cannot export their output to world markets as exports would be considered subsidized under world trade organization rules in this paper we show that once foregone export opportunities are accounted for supply management may no longer be beneficial to domestic producers of the supply managed commodities the extent to which foregone profits from exports dominate domestic rents depends on canada s comparative advantage domestic market elasticities and the extent of supply management distortion in the domestic market