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

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.

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File URL: http://www.uib.no/filearchive/No.%2012-08.pdf
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Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 12/08.

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Length: 23 pages
Date of creation: 23 Aug 2008
Date of revision:
Handle: RePEc:hhs:bergec:2008_012
Contact details of provider: Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
Web page: http://www.uib.no/econ/en
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  1. Chang, Hung-Hao & Boisvert, Richard N. & Blandford, David, 2005. "Achieving Environmental Objectives Under Reduced Domestic Agricultural Support and Trade Liberalization: An Empirical Application to Taiwan," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 34(1), April.
  2. Brunstad, Rolf Jens & Gaasland, Ivar & Vårdal, Erling, 2005. "Multifunctionality of agriculture: An inquiry into the complementarity between landscape preservation and food security," Working Papers in Economics 11/05, University of Bergen, Department of Economics.
  3. Jeffrey M. Peterson & Richard N. Boisvert & Harry de Gorter, 2002. "Environmental policies for a multifunctional agricultural sector in open economies," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 29(4), pages 423-443, December.
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