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Producer Compensation under Government Programs: What Should the Magnitude Be?

Author

Listed:
  • Haynes, Dwayne J.
  • Schmitz, Andrew
  • Schmitz, Troy G.

Abstract

When policies are changed it is not uncommon for losers to be compensated. Economic theory and quantitative analysis are useful in determining the efficiency gains/losses associated with a policy change, but are little help in deciding what the approach to compensation should be. The amount of compensation varies, depending on, in part, the political clout of the parties being negatively affected by a policy change—compensation is what politicians and the sector demanding compensation can agree on. We formulate four approaches to producer compensation within the context of the Ontario Tobacco Transition Program where producers would have suffered losses in the absence of compensation. The approaches range from providing zero-compensation to providing compensation based on the entire value of the tobacco quota. The Canadian government chose to compensate producers for the termination of the tobacco quota program based on an approach that far exceeded other possible compensation approaches. Importantly, efficiency is not affected by the compensation approach.

Suggested Citation

  • 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.
    • Handle: RePEc:ags:saea15:196887
    DOI: 10.22004/ag.econ.196887
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    References listed on IDEAS

    as
    1. Rucker, Randal R & Thurman, Walter N & Sumner, Daniel A, 1995. "Restricting the Market for Quota: An Analysis of Tobacco Production Rights with Corroboration from Congressional Testimony," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 142-175, February.
    2. 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.
    3. Schmitz, Andrew & Haynes, Dwayne J. & Schmitz, Troy G., 2013. "Benefit-cost analysis: government compensation vs. consumer tax model," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 4(3), pages 375-389, December.
    4. 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(01), pages 1-15, July.
    5. 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.
    6. Troy G. Schmitz & Tim Highmoor & Andrew Schmitz, 2002. "Termination of the WGTA: An Examination of Factor Market Distortions, Input Subsidies anc Compensation," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 50(3), pages 333-347, November.
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