Alternative Approaches to Compensation and Producer Rights

When policies are changed, it is not uncommon for losers to be compensated. Economic theory and quantitative analysis are useful in determining the efficiency gains/losses associated with a policy change, but are little help in deciding what the approach to compensation should be. The amount of compensation varies, depending on, in part, the political clout of the parties being negatively affected by a policy change—compensation is what politicians and the sector demanding compensation can agree on. We formulate four approaches to producer compensation within the context of the Ontario Tobacco Transition Program, where producers would have suffered losses in the absence of compensation. The approaches range from providing zero compensation to providing compensation based on the entire value of the tobacco quota. The Canadian government chose the latter and compensated producers for the termination of the tobacco quota program based on an approach that far exceeded other possible compensation approaches.     

Einzelbesprechungen

Ohne Zusammenfassung     

Einzelbesprechungen

Ohne Zusammenfassung     

Impact of the 2014 Suspension Agreement on sugar between the United States and Mexico

In December 2014, the U.S. and Mexico agreed to a suspension agreement that set a $22.25/cwt import price floor on U.S. sugar imports from Mexico. A partial equilibrium trade model was developed to estimate the economic impact the agreement would have had if it had been in effect from 2008 to 2014. In years when the price floor would have been binding, on average, U.S. producers would have gained $138 million and Mexican producers would have lost $218 million. However, total Mexican welfare would have actually increased by $11.5 million. Furthermore, the average price floor that would have maximized total Mexican welfare over that period is $22.76/cwt. Also, under certain supply and demand elasticity conditions, the average price floor that would have maximized joint U.S. and Mexican producer welfare over that period is $21.91/cwt. The latter two estimates are both close to the actual price floor agreed to in the 2014 Suspension Agreement.     

REPEATED MORAL HAZARD AND CONTRACTS WITH MEMORY: THE CASE OF RISK‐NEUTRALITY*

We consider a repeated moral hazard problem where both the principal and the wealth‐constrained agent are risk‐neutral. In each of two periods, the agent can exert unobservable effort, leading to success or failure. Incentives provided in the second period act as carrot and stick for the first period, so that the effort level induced in the second period is higher after a first‐period success than after a failure. If renegotiation cannot be prevented, the principal may prefer a project with lower returns; i.e., a project may be “too good” to be financed or, similarly, an agent can be “overqualified.”