Optimal Agricultural Policy and PSE Measurement: An Assessment and Application to Norway

21 Pages Posted: 13 Apr 2010

See all articles by David Blandford

David Blandford

Pennsylvania State University - College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology

Rolf Jens Brunstad

Norwegian School of Economics (NHH)

Ivar Gaasland

Institute for Research in Economics and Business Administration (SNF)

Erling Vardal

University of Bergen - Department of Economics

Date Written: November 2, 2007

Abstract

The producer support estimate (the successor to the producer support equivalent) calculated by the OECD is widely used as an indicator of distortions created by agricultural policies. In this paper we demonstrate that changes in the relative (percentage) PSE are not an accurate indicator of the implications of policy reform for domestic welfare or for trade distortions. We demonstrate that it is important to consider the implications of changes in both the level and the form of support in evaluating the impact of policy reform. Using a model of Norwegian agriculture we show that reforms indicated towards the provision of public goods, while apparently leading to an increase in relative support, are actually superior to existing agricultural policies or to a policy aimed at eliminating subsidized exports both in terms of reducing trade distortions and increasing domestic economic welfare.

Keywords: Agricultural policy, trade distortion, domestic support, producer subsidy

JEL Classification: C61, F13, F18, Q17, Q18

Suggested Citation

Blandford, David and Brunstad, Rolf Jens and Gaasland, Ivar and Vardal, Erling, Optimal Agricultural Policy and PSE Measurement: An Assessment and Application to Norway (November 2, 2007). NHH Dept. of Economics Discussion Paper No. 28/2007, Available at SSRN: https://ssrn.com/abstract=1550642 or http://dx.doi.org/10.2139/ssrn.1550642

David Blandford

Pennsylvania State University - College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology ( email )

University Park, PA 16802-3306
United States

Rolf Jens Brunstad (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Ivar Gaasland

Institute for Research in Economics and Business Administration (SNF) ( email )

Breiviksveien 40
Bergen, N-5045
Norway

Erling Vardal

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

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