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Measuring Protection In Agriculture: The Producer Subsidy Equivalent Revisited

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  • Masters, William A.

Abstract

In the 1980s, the Producer Subsidy Equivalent (PSE) became the dominant measure of protection in applied studies of international agricultural trade. This paper analyzes potential biases in the ratio form of the PSE introduced by using actual domestic prices rather than social opportunity costs in the denominator. It is shown that doing so introduces a consistent under-estimation of the effects of trade restrictions and other price-support policies, relative to deficiency payments and other income-support policies. It is found that under plausible conditions this bias leads the PSE to rank protection levels across countries or crops incorrectly. In a sample of 250 activities across 33 countries, such errors were found to occur in 5% of crop comparisons and 8% of country comparisons, including a number of politically sensitive cases. An improved formula would therefore provide significantly more accurate results than the conventional PSE, with no additional data or more restrictive assumptions.

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Bibliographic Info

Paper provided by International Agricultural Trade Research Consortium in its series Working Papers with number 51114.

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Date of creation: 1993
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Handle: RePEc:ags:iatrwp:51114

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Related research

Keywords: Agricultural and Food Policy; International Relations/Trade;

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As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Agricultural Economics > Agricultural Policy
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Cited by:
  1. Krissoff, Barry & Ballenger, Nicole & Dunmore, John C. & Gray, Denice, 1996. "Exploring Linkages Among Agriculture, Trade, and the Environment: Issues for the Next Century," Agricultural Economics Reports 33961, United States Department of Agriculture, Economic Research Service.

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