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Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts

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  • Schmitz, Andrew
  • Schmitz, Troy G.

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, Cambridge University Press, vol. 1(1), pages 1-15, July.
    • Handle: RePEc:cup:jbcoan:v:1:y:2010:i:1:p:1-15_2
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    Citations

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    Cited by:

    1. John B. Loomis, 2013. "Incorporating distributional issues into benefit–cost analysis: why, how, and two empirical examples using non-market valuation," Chapters, in: Scott O. Farrow & Richard Zerbe, Jr. (ed.), Principles and Standards for Benefit–Cost Analysis, chapter 9, pages 294-316, Edward Elgar Publishing.
    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), pages 1-12, February.
    3. 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.
    4. Brennan A. McLachlan & G. Cornelis van Kooten, 2022. "Reforming Canada's dairy supply management scheme and the consequences for international trade," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 70(1), pages 21-39, March.
    5. 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.
    6. 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.
    7. 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.
    8. G. Cornelis van Kooten, 2020. "Reforming Canada's Dairy Sector: USMCA and the Issue of Compensation," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(3), pages 542-558, September.

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