Endogenous Participation in Agricultural Support Programs and Ad Valoremequivalent Modelling
29 Pages Posted: 26 Jul 2010 Last revised: 20 Jan 2015
Date Written: May 1988
This paper argues that a price wedge treatment of agricultural supports can seriously misrepresent their welfare and quantity effects. We make our point by focusing on pre-1985 US wheat programs, but features of programs in many other countries lead to comparable problems with the ad valorem approach. This line of argument raises questions over the current approach in the multilateral trade negotiations of negotiating on producer subsidy equivalents (PSEs), or some other subsidy-like measure.
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