Quota prices as indicators of comparative advantage in supply‐managed industries

The Canadian dairy, egg, broiler, and turkey industries operate under supply management, a policy regime that sets product prices and allocates production among provinces and ultimately among farms through quotas. The Canadian Farm Products Agencies Act requires that comparative advantage be used to guide the allocation of new quota when increases in consumer demand necessitate increased production. This requirement, however, has not been met in practice. We develop a proposal by Meilke to use quota prices as measures of comparative advantage. We evaluate the quota price approach and other proposed methods, from a Hayekian and Coasean market process perspective. We conclude that quota prices offer an economically justifiable indicator of provincial comparative advantage. We develop an individual‐level general equilibrium model of quota exchange to illustrate the informational content of quota prices as indicators of comparative advantage. We also discuss potential practical challenges of using quota prices as indicators of comparative advantage.     

Changes in the socialist countries: Contents and prospects

Abstract

This paper examines volatility transmission and conditional correlations behaviour between the US and the Asian stock markets considering the effect of the Global Financial crisis. One Asian mature market and 10 emerging markets are included in the sample. To carry out the analysis, we use a multivariate asymmetric GARCH model. Results show that there exists volatility transmission between the US and the Asian markets. Moreover, it is found that, after the crisis, volatility transmission patterns have barely changed. Finally, results suggest that the lower the country‘s level of development, the lower the correlation with the USA.     

Environmental Externalities,Comparative Advantage,and the Location of Production: An Application to the Canadian Dairy Industry

The traditional theory of comparative advantage has not been well integrated with the theories of externalities and location. In this paper we develop a conceptual framework which undertakes such an integration at the firm and regional levels. We call this the General Equilibrium with Individual Spatial Heterogeneity and Externalities (GEISHE) model. We use the model to study the effect of spatial heterogeneity in emission intensity on the spatial distribution of production under a uniform emission standard. This model suggests that the introduction of an emission restriction can have differential effects on the spatial patterns of production, depending on local production intensity. We also present empirical analysis of intraprovincial movement of production for the Canadian dairy industry using 1996 and 2006 Census data. Ceteris paribus, areas that had higher dairy production intensities in 1996 also tended to experience higher declines in their dairy cow populations between 1996 and 2006, which is consistent with the GEISHE model. These results suggest that environmental pressure may change the patterns of comparative advantage within a supply managed industry, even if relocation of production across provincial boundaries is not permitted. Expression of environmental comparative advantages seems to be taking place within provinces.     

Spatial optimization of nutrient reduction measures on agricultural land to improve water quality: A coupled modeling approach

The objective of this study is to identify the optimal spatial distribution of Best Management Practices (BMPs) to reduce total phosphorus (TP) runoff from agricultural land in the largest Canadian watershed draining into Lake Erie, the Great Lake most vulnerable to eutrophication. BMP measures include reduced fertilizer application, cover crops, buffer strips, and the restoration of wetlands. Environmental SWAT model results feed into a spatial optimization procedure using two separate objective functions to distinguish between public BMP program implementation costs (PIC) on the one hand and farmers’ private pollution abatement costs (PAC) on the other hand. The latter account for the opportunity costs of land retirement and changing land productivity. PAC are initially lower than PIC but exceed the latter after 30% of the annual TP baseline load is eliminated. This suggests that under optimal conditions existing grant and incentive payments cover the economic costs farmers face up to a maximum of 30% of the baseline load reduction. Imposing further reductions of up to 40% results in a cost to farmers of almost $52 million per year. This is 45% higher than the optimal solution based on PIC and therefore not deemed incentive-compatible under the watershed's existing cost-sharing scheme.     

Risk and Nitrogen Application Levels

Stochastic weather and soil conditions are the suggested reasons why farmers tend to apply more than the recommended levels of nitrogen. This study found that uncertainty plays a role in the application decision of farmers but not in the manner typically assumed. Using a time series of field trials of corn yield to nitrogen for the same site, nitrogen was found to be a risk‐increasing input suggesting that uncertainty should decrease, rather than increase, a risk‐averse farmer's rate of nitrogen application. Similarly, viewing risk as a profit shortfall, in which fertilizer acts in the role of insurance, was also not supported with the empirical results. Instead, the key role of uncertainty is its impact on expected profits. Increasing application rates leads to lower returns in most years but the increase in profits generated under favorable growing conditions results in greater expected profits with a high application strategy. Les conditions météorologiques et pédologiques aléatoires seraient les raisons pour lesquelles les agriculteurs tendent à appliquer des doses d'azote supérieures aux doses recommandées. Selon la présente étude, l'incertitude joue un rôle dans les décisions d'application des agriculteurs, mais d'une façon différente de celle généralement supposée. À l'aide d'une série chronologique d'essais en champ mesurant le rendement du maïs en fonction de l'azote dans le même site, nous avons trouvé que l'azote était un intrant qui augmentait les risques, ce qui laisse supposer que l'incertitude devrait faire diminuer, plutôt que de faire augmenter, la dose d'application d'azote dans le cas d'un producteur qui craint les risques. De même, considérer le risque de baisse des profits où l'engrais assume le rôle d'assurance n'a pas été appuyé par les résultats empiriques. Le rôle clé de l'incertitude est son impact sur les profits prévus. L'augmentation des doses d'application entraîne une diminution des rendements la plupart des années, mais l'augmentation des profits générés dans des conditions de croissance favorables entraîne des profits prévus plus élevés grâce à une meilleure stratégie d'application.