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Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts

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  • Schmitz Andrew

    (University of Florida)

  • Schmitz Troy G.

    (Arizona State University)

Abstract

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.

Suggested Citation

  • Schmitz Andrew & Schmitz Troy G., 2010. "Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts," Journal of Benefit-Cost Analysis, De Gruyter, vol. 1(1), pages 1-15, July.
  • Handle: RePEc:bpj:jbcacn:v:1:y:2010:i:1:n:2
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    References listed on IDEAS

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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. 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.
    3. 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.
    4. 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.
    5. James Vercammen & Andrew Schmitz, 1992. "Supply Management and Import Concessions," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 957-971, November.
    6. 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.
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    Cited by:

    1. Loomis John B, 2011. "Incorporating Distributional Issues into Benefit Cost Analysis: Why, How, and Two Empirical Examples Using Non-market Valuation," Journal of Benefit-Cost Analysis, De Gruyter, vol. 2(1), pages 1-24, January.
    2. Schmitz, Troy G. & Schmitz, Andrew, 2012. "The Complexities of the Interface between Agricultural Policy and Trade," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 13(1).
    3. Haynes, Dwayne J. & Schmitz, Andrew & Schmitz, Troy G., 2015. "Producer Compensation under Government Programs: What Should the Magnitude Be?," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196887, Southern Agricultural Economics Association.
    4. G. Cornelis van Kooten, 2017. "The Welfare Economics of Dismantling Dairy Quota in a Confederation of States," Working Papers 2017-04, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    5. Schmitz Andrew & Haynes Dwayne J. & Schmitz Troy G., 2013. "Benefit-cost analysis: government compensation vs. consumer tax model," Journal of Benefit-Cost Analysis, De Gruyter, vol. 4(3), pages 375-389, December.
    6. Andrew Schmitz & Dwayne J. Haynes & Troy G. Schmitz, 2016. "Alternative Approaches to Compensation and Producer Rights," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(3), pages 439-454, September.
    7. John B. Loomis, 2013. "Incorporating distributional issues into benefit–cost analysis: why, how, and two empirical examples using non-market valuation," Chapters,in: Principles and Standards for Benefit–Cost Analysis, chapter 9, pages 294-316 Edward Elgar Publishing.

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