Comparative advantage motivates large trade flows in feeder animals throughout the world. Trade creates externalities when animal diseases can spread beyond the purchasing farm. When growers can choose between open and closed production systems, Nash equilibrium will likely involve socially excessive trading. Supply response to an increase in marginal costs may be positive. While first-best involves marketwide adoption of either an open-trade or closed-farm system, equilibrium may entail heterogeneous systems. If this is the case, then the feeder trade should be banned. Within a farm, we show how risk of infectious disease can create decreasing returns to scale when the technology is otherwise increasing in returns to scale. Control of disease risk through bilateral contracts or damage-control technologies will increase scale of production in fattening, while better sorting in feeder animal markets will have ambiguous effects on scale.
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Find related papers by JEL classification: D62 - Microeconomics - - Welfare Economics - - - Externalities H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Geoffard, Pierre-Yves & Philipson, Tomas, 1996.
"Rational Epidemics and Their Public Control,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 603-24, August.
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