Optimal agricultural policy and PSE measurement: an assessment and application to Norway

David Blandford, Rolf Jens Brunstad, Ivar Gaasland and Erling Vardal

No 36769, 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK from Agricultural Economics Society

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 estimate (PSE); Agricultural and Food Policy; C61; F13; F18; Q17; Q18 (search for similar items in EconPapers)
Date: 2008-03-31
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