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Optimal agricultural policy and PSE measurement: an assessment and application to Norway

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Abstract

The producer support estimate calculated by the OECD is widely misused as an indicator of distortions created by agricultural policies. In this paper we demonstrate rigorously that a change in the relative (percentage) PSE is not an accurate indicator of the implications of policy reform for domestic welfare or for trade distortions. If there are positive externalities linked to agricultural inputs (e.g., land), we demonstrate that replacing output subsidies by optimal Pigouvian subsidies may result in an increase or a reduction in relative PSE depending on the parameters of the production function. Using the example of Norway we show that an increase in the relative PSE is likely if the focus of agricultural policies shifts from income support to the provision of public goods.

Suggested Citation

  • Blandford, David & Brunstad, Rolf Jens & Gaasland, Ivar & Vårdal, Erling, 2008. "Optimal agricultural policy and PSE measurement: an assessment and application to Norway," Working Papers in Economics 12/08, University of Bergen, Department of Economics.
    • Handle: RePEc:hhs:bergec:2008_012
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    Cited by:

    1. Czyżewski, Andrzej & Grochowska, Reanata & Józwiak, Wojciech & Kosior, Katarzyna & Kułyk, Piotr & Mirkowska, Zofia, 2014. "Development trends in agricultural sector and policies − challenges for the future (Synthesis)," Multiannual Program Reports 206066, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    2. Czyżewski, Bazyli, 2016. "Political Rents of European Farmers in the Sustainable Development Paradigm. International, national and regional perspective," MPRA Paper 74253, University Library of Munich, Germany.

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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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