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Towards a Theory of Policy Making

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  • Mittenzwei, Klaus
  • Bullock, David S.
  • Salhofer, Klaus
  • Kola, Jukka

Abstract

The paper presents a theory of policy timing that relies on uncertainty and transaction costs to explain the optimal timing and length of policy reforms. Delaying reforms resolves some uncertainty by gaining valuable information and saves transaction costs. Implementing reforms without waiting increases welfare by adjusting domestic policies to changed market parameters. Optimal policy timing is found by balancing the trade-off between delaying reforms and implementing reforms without waiting. Our theory offers an explanation of why countries differ with respect to the length of their policy reforms, and why applied studies often judge agricultural policies to be inefficient.

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File URL: http://purl.umn.edu/114639
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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114639.

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Date of creation: 2011
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Handle: RePEc:ags:eaae11:114639

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Related research

Keywords: Policy analysis; Uncertainty; Dynamic model; Transaction costs; Agricultural and Food Policy;

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  1. Carsten Daugbjerg, 1999. "Reforming the CAP: Policy Networks and Broader Institutional Structures," Journal of Common Market Studies, Wiley Blackwell, vol. 37(3), pages 407-428, 09.
  2. Pindyck, Robert S., 2002. "Optimal timing problems in environmental economics," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1677-1697, August.
  3. Reyer Gerlagh & Snorre Kverndokk & Knut Rosendahl, 2009. "Optimal Timing of Climate Change Policy: Interaction Between Carbon Taxes and Innovation Externalities," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(3), pages 369-390, July.
  4. Zusman, Pinhas, 1976. "The Incorporation and Measurement of Social Power in Economic Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 447-62, June.
  5. Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
  6. Fisher, Anthony C & Hanemann, W Michael, 1990. "Option Value: Theory and Measurement," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 17(2), pages 167-80.
  7. Heikkinen, Tiina & Pietola, Kyosti, 2006. "Investment and the Dynamic Cost of Income Uncertainty: the Case of Diminishing Expectations in Agriculture," Discussion Papers 11868, MTT Agrifood Research Finland.
  8. David S. Bullock & Klaus Salhofer & Jukka Kola, 1999. "The Normative Analysis of Agricultural Policy: A General Framework and Review," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 512-535.
  9. Kolstad, Charles D., 1996. "Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 1-18, July.
  10. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  11. L.P. Mahé & T.L. Roe, 1996. "The Political Economy of Reforming the 1992 CAP Reform," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(5), pages 1314-1323.
  12. Guyomard & Baudry & Carpentier, 1996. "Estimating crop supply response in the presence of farm programmes : application to the CAP," Working Papers 153134, Institut National de la Recherche Agronomique, France.
  13. Rausser, Gordon C & Freebairn, John W, 1974. "Estimation of Policy Preference Functions: An Application to U.S. Beef Import Quotas," The Review of Economics and Statistics, MIT Press, vol. 56(4), pages 437-49, November.
  14. Bullock, David S, 1995. "Are Government Transfers Efficient? An Alternative Test of the Efficient Redistribution Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1236-74, December.
  15. Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May.
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