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Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts

Listed author(s):
  • Schmitz Andrew

    (University of Florida)

  • Schmitz Troy G.

    (Arizona State University)

Benefit-cost (B/C) analysis must take into account the distributional effects from a policy or program change. To highlight this, we focus on the theory of production quota buyouts within a B/C framework. As an empirical application, we provide evidence on the distributional effects of the U.S. government buyout of the peanut program in 2002, where production quotas were key ingredients. Two approaches to producer compensation under the buyout are discussed: (1) value of quota approach and (2) gains from quota approach. In the peanut quota program buyout, the U.S. government chose the value of quota approach. Both consumers and producers were made better off as a result of the buyout, and there was a net gain in efficiency. If the government had chosen the gains from quota approach instead, government expenditures and producer gains would have been lower, and consumer benefits would have remained unchanged. Under either approach, the B/C ratios calculated for the government quota buyout are almost identical.

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Article provided by De Gruyter in its journal Journal of Benefit-Cost Analysis.

Volume (Year): 1 (2010)
Issue (Month): 1 (July)
Pages: 1-15

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Handle: RePEc:bpj:jbcacn:v:1:y:2010:i:1:n:2
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  1. Bergtold, Jason S. & Akobundu, Eberechukwu & Peterson, Everett B., 2004. "The FAST Method: Estimating Unconditional Demand Elasticities for Processed Foods in the Presence of Fixed Effects," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(02), August.
  2. James Vercammen & Andrew Schmitz, 1992. "Supply Management and Import Concessions," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 957-971, November.
  3. T. D. Wallace, 1962. "Measures of Social Costs of Agricultural Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 44(2), pages 580-594.
  4. Dohlman, Erik & Foreman, Linda F. & Da Pra, Michelle, 2009. "Removal of Government Controls Opens Peanut and Tobacco Sectors to Market Forces," Amber Waves, United States Department of Agriculture, Economic Research Service, December.
  5. Dohlman, Erik & Foreman, Linda F. & Da Pra, Michelle, 2009. "The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform," Economic Information Bulletin 56628, United States Department of Agriculture, Economic Research Service.
  6. Paul R. Johnson, 1965. "The Social Cost of the Tobacco Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 47(2), pages 242-255.
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