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Quality Responses to Agricultural Policies

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  • James, Jennifer S.

Abstract

Most policy analyses are conducted using a model of a single market for a homogeneous commodity. Usually, the commodity of interest is not truly homogeneous, but the homogeneity assumption is imposed for the sake of simplicity. In doing so, analysts are implicitly assuming that a single-market model of a homogeneous product closely approximates true policy effects. This paper explores the implications of this assumption. The effects of the homogeneity assumption are shown for the simple case of a product available in two qualities, when market-distorting policies are introduced. It is shown that, for plausible parameter values, ignoring quality responses can have substantial impacts on the estimated welfare effects of policies. In addition, for a given transfer to producers, a model that incorporates quality responses to policies will imply different settings for policy instruments than a model of a homogeneous commodity, and in some cases, different instruments. For some transfers, including quality responses will switch the ranking of policies.

Suggested Citation

  • James, Jennifer S., 1999. "Quality Responses to Agricultural Policies," 1999 Annual meeting, August 8-11, Nashville, TN 271488, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea99:271488
    DOI: 10.22004/ag.econ.271488
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    References listed on IDEAS

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