25 sectors with higher supply elasticities in general) will be subsidized less often (or taxed more often) and that commodity support is negatively related to supply elasticities. Again, these factors are likely to affect also the choice of policy instruments, as, for example, when governments restrain supply responses through such additional regulations as marketing quotas and/or land controls (Rausser 1992; Rausser, Zilberman, and Just 1984).

Another explanation for intrasectoral NRA dispersion has already been identified as a cause of high-income countries’ policy shifts (Subsection 3.4): the costs of implementing various policies. When implemented, policies that change incentives to producers and consumers also provide incentives for avoiding the incidence of such policies. The costs of implementing (and enforcing) certain policies can be quite substantial. Since large differences exist in the way commodities are marketed, these differences affect the costs of intervening in the market. For example, commodities which are perishable and require processing (with scale economies), such as sugar and dairy products, are typically marketed through processing companies—a point at which governments can intervene at relatively low cost. In contrast, it can be more costly to intervene in the case of products that are easily storable and/or which farmers can market directly to consumers (or to other farmers).<sup>34</sup> Finally, McMillan (2001) argues that in developing countries, governments have treated perennial crops differently than annual crops due to farmers’ flexibility and the role of sunk costs. O nce farmers have incurred the costs of establishing a perennial plantation, they will continue to produce the exportable as long as the price they receive covers incremental or harvesting costs. Other things equal, national welfare cost is lower (at least in the short term) from taxing perennial than annual crops. Gawande and Hoekman (2010) find empirical support for this hypothesis. Moreover, Masters and Garcia (2010) find that governments with a lower political discount rate (i.e., those that are less likely to lose power in the future, which presumably includes more autocratic regimes) are more likely to tax perennials than annual crops.

Ample empirical evidence shows that governmental support to specific agricultural commodities is negatively related with structural factors. The latter factors include not only the share of food in consumers’ expenditures and the share of agricultural employment in the economy but also trade balances, supply elasticities, and indicators of comparative advantage and deadweight costs.<sup>35</sup> However, evidence for the government-revenue motive is mixed. Dutt and Mitra (2010) find some support for it, but Masters and Garcia (2010) and Bates and Block (2010, for Africa in particular) find either mixed or conflicting evidence.

# **4. Implications for Further Research and the Potential for Policy Reforms**

From our assessment, it is clear that much progress has occurred in the past decade or so in improving our understanding of why governments distort incentives facing agriculture. Certainly, more empirical testing of hypotheses suggested by theorists could be done, but considerable light has already been shed on most of the stylized facts raised by the World Bank’s new documentation of the evolution of global price distortions since the 1950s.

> 34 Supply and demand elasticities and the nature of the marketing chain may also work together. For example, in many rich countries, high price supports for certain commodities are associated with supply-control policies, which are implemented in order to limit the distortions caused by these policies (and to avoid spreading their benefits to new entrants). However, such supply control is easier to implement for some commodities (e. g., those with concentrated processing or marketing channels) than for others.

> 35 See de Gorter and Swinnen (2002) for a list of extensive empirical evidence on this relationship.