Download AGRICULTURAL, FOOD AND RESOURCE POLICY (AGEC 430)

2.4 Rationale for Intervention
• Debate: proper role of Government
Cochrane – YES – good society
Tweeten – NO distortion
• Should government be involved?
Why is government involved?
• Theory of public choice
J. Buchanan & G. Tulloch (The Calculus of Consent – 1962)
Premise:
Objective:
Interventions:
Interest groups:
self-interest of government
Retain power - votes
taxes, subsidies
influence – rent seeking
• Political market – supply and demand
Choices made: economically inefficient
. Politically efficient
Why does policy exist?
1) Market failure
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externalities
benefits/costs not reflected in prices
inefficient allocation of resources - sub-optimal
Intervention:
• market equilibrium closer to social optimum
Rational basis for intervention?
– Ronald Coase (1930’s)
• property rights is the problem
• Create rights & the market will work
2) Robin Boadway (1997) – 3 reasons
• Efficiency – externality argument
• Stabilization – price/income
• Redistribution – social goals
Distribution and rent-seeking
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Redistributive government, prey to rent-seeking
Rent-seeking – active redistribution
Incentive to organize and lobby government
e.g. SM-5, CPR
Institutions and Goods
Where should government get involved?
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Institutions help define the nature of goods and the
rationale for intervention
Who should provide which goods?
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Characteristics
a) form, location, time
b) exclusivity - excludability
defined property rights
enforcement
c) rivalry - divisibility
d) voice
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3 types of goods
• private
• public
• common access (pool)
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Government intervention
– change the nature of a good – lobby pressure
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E.g. plant genetics –
Bill C-20 Plant Breeders’ Rights Act (1990)
Bill C-91 (patent protection) (1993)
Drug Patent Act
Picciotto's (1995) Framework
Government
PUBLIC
Exclusive
Voice
COMMON
POOL
PRIVATE
Market
Rival
Civil Society
Collectives
Rent-seeking – Always bad?
a)
Predominant view – RS => misallocation
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b)
No distortions – competitive markets
Waste of resources
Benefits to rent seeking
Effective intervention requires information
RS – source of information on social needs,
costs to provide goods
Potential efficiency gain
e.g. 2008 Organic Farming Regulation (Federal)
Categories of rent seeking (Rausser)
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Political economic-seeking transfers (PESTs)
Predatory behaviour
Purely an economic transfer rent seeking behaviour
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Political economic-resource transaction (PERTs)
Correct market distortions, improves efficiency
Information – preferences, costs
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Government:
– Balance interests of various groups (PERTS/PESTS)
Canadian PERTS/PESTS (OECD, 2000)
PSE
PESTs
PERTs
(% of PSE)
(% of PSE)
Wheat
33
79.2
20.8
Milk
71.2
94
6
Eggs
26.6
75.8
24.2
Beef
18
26.7
73.3
Pork
16.6
16.3
83.7
- Data from late 1980’s
Canada: Support to Agriculture ($CA Billions)
Producer Support ($B)
PSE (%)
Consumer Support ($B)
Total Support ($B)
Transfers from consumers
Transfers from taxpayers
Total Support/GDP (%)
1986-88
8.05
36
- 3.79
10.01
4.14
5.88
1.80
2004-06
7.96
22
- 3.63
10.82
3.63
7.19
0.79
2006
8.53
23
- 4.23
11.46
4.23
7.23
0.80
United States: Support to Agriculture ($US Billions)
Producer Support ($B)
PSE (%)
Consumer Support ($B)
Total Support ($B)
Transfers from consumers
Transfers from taxpayers
Total Support/GDP (%)
1986-88
36.8
22
-3.0
64.1
14.8
50.9
1.35
2004-06
38.1
14
19.6
101.5
10.2
92.8
.82
2006
29.3
11
25.9
96.9
5.7
92
.73
Other Countries PSEÕs(2002-06)
New Zealand Ğ 3%
Australia Ğ 5%
EU Ğ 32%
Japan Ğ 55%
Iceland Ğ 75%
OECD, Paris: Agricultural Poli cies in OECD Countries: Monitoring and Evaluation (2007)
Rent Seeking – conflicts & coalitions
• Multiple rent-seeking groups
– Rent-seeking conflicts
– farmers vs. consumers vs processors
– Farmers vs. Environmentalists
• Input subsidies (diesel) - reduced GHG emissions
• Coalitions & log rolling
– Multiple groups – common objective
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Commodity groups
Farm organizations
Input manufacturers
Grain handlers
Consumers
• Common goal: Increased farm output
Lobby Groups
• Farm organizations
Canadian Federation of Agr. (CFA)
• umbrella group
National farmers Union (NFU)
• Individual membership
Commodity groups
– Western Canadian Wheat Growers Assoc
– Canadian Cattlemen’s Association
– Dairy Farmers of Canada
Provincial groups
• UPA
• Dairy farmers of Ontario
• Sask. Organic Directorate
• Private companies
• Government’s problem?
Who speaks for Canada?
Free trade vs protection (Potash Corp. CRTC)
Consumer protection vs freedom to farm