Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts

Abstract

Benefit-cost (B/C) analysis must take into account the distributional effects from a policy or program change. To highlight this, we focus on the theory of production quota buyouts within a B/C framework. As an empirical application, we provide evidence on the distributional effects of the U.S. government buyout of the peanut program in 2002, where production quotas were key ingredients. Two approaches to producer compensation under the buyout are discussed: (1) value of quota approach and (2) gains from quota approach. In the peanut quota program buyout, the U.S. government chose the value of quota approach. Both consumers and producers were made better off as a result of the buyout, and there was a net gain in efficiency. If the government had chosen the gains from quota approach instead, government expenditures and producer gains would have been lower, and consumer benefits would have remained unchanged. Under either approach, the B/C ratios calculated for the government quota buyout are almost identical. KEYWORDS:benefit-cost analysis, distributional effects, production quota buyouts, U.S., peanut quota program, value of quota approach, gains from quota approach

Alternative Approaches to Compensation and Producer Rights

“…Below, we focus on a comparison of the BPQ and the TMQ in the context of producer compensation under discounting. It is common in economic analysis to do a present value calculation of the flow of income from a “true” quota value (stock) in order to determine the lump sum producer compensation (Schmitz and Schmitz ). We calculate present values on both the BPQ and TMQ, recognizing that the BPQ has a very different connotation than does the TMQ as the BPQ was not binding under the production quota system.…”

“…These payments were intended to compensate owners for the loss of an income‐producing asset. Producers were made better off as a result of the buyout, and there was a net gain in efficiency (Schmitz and Schmitz ).…”

Milked and Feathered: The Regressive Welfare Effects of Canada's Supply Management Regime

“…4 Summary statistics for the large number of remaining variables are available upon request. 5 It is likely that public funds would be used to compensate SM producers if current protections were removed (see Barichello et al 2009 andSchmitz andSchmitz 2010 for a discussion of alternative methods to compensate producers). Our welfare estimates do not consider the burden on consumers of using public funds for this purpose.…”

Agriculture in the United States, Mexico, Canada Agreement: Agreeing to keep things pretty much the same

“…Academic agricultural economists provide little help as there is no agreement on the methodology to be used to determine compensation. While compensation in the case of concessions given in trade agreements has received less attention, the compensation that might be required from the abandonment of the supply management policy has received considerable attention, but with little consensus on methods or results—examples include Barichello, Cranfield, and Meilke (); Busby and Schwanen (), Grant, Barichello, Liew, and Gill (); Nogueira, Barichello, Baylis, and Chouinard (); Schmitz and Schmitz (); Schmitz, Haynes, and Schmitz (); Schmitz, Haynes, and Schmitz (); Van Kooten (); and Vercammen and Schmitz (). Given the complexity of the Canadian dairy market under supply management, determining the appropriate compensation is challenging as it deals with future counterfactuals, future income streams, appropriate discount rates, the post change equilibrium, and, in the case of concessions arising from trade agreements establishing the ceteris paribus conditions so that the changes that can be attributed to the concessions can be isolated from those arising from other factors over lengthy phase in periods.…”