Agricultural Policy Measures/Lee
Historical archive
Published under: Stoltenberg's 1st Government
Publisher: Ministry of Agriculture
Guidelines/brochures | Date: 16/10/2000
Agricultural Policy Measures adressing Non-Trade Concerns
by Jaeok Lee,
Korean Rural Economics Institute
Republic of Korea
CLARIFICATION OF CONCEPTS
To reduce confusion surrounding theconcepts related
to multifunctionalities
-Externalities:
market failure, internalisation
-Public Goods:
understatement of preference, free riders
-Joint Production:
relationships among jointly produced products
To strengthen the rationale to emphasise multifunctionalities and to design appropriate policy sets
EXTERNALITIES
Characteristics
-Externalities usually occur in ways that are not taken into account by the operation of market
-Distortion of resource allocation
Positive and Negative Externalities
-Sub-optimal level of production in case of positive externalities
Problems of Internalisation
-Externalities with private goods aspects;
bargaining, merger
-Externalities with pure public good aspects as in agriculture;
market failure without governmental intervention
PUBLIC GOODS
Characteristics of Public Goods
-Non-exclusivity: Difficulties to exclude individuals from benefiting from the good once it is produced
-Non-rivalry: If additional consumption involves zero marginal costs of production
Problems of Free Rider
-This fact makes more difficult to internalise externalities
Problems of Understatement of Preference
Address collectively through political decision making process
JOINT PRODUCTION
Definition
-If several products are produced and inputs cannot be assigned separately to each output
-Non-separable production function
-Variable combination of outputs
Cheaper solution to secure public goods
Food Security; Figure 2(2)
Viability of Rural Areas; Figure 2(2)
Protection of the Environment; Figure 2(3)
Other elements of Multifunctionalities;
Flood control of rice paddy; Figure 2(2)
SYNTHESIS OF THE CONCEPT
Externalities and Public Goods
-Both depict market failure situation and the necessities of government intervention
-Reasons of market failure are different;
internalisation, free riders
-NTCs of agriculture have both concepts
-One of the two is redundant for the rationale of government intervention
Externalities and Joint Products
-Intentions to produce NTCs are different
-NTCs are not unintended side-effects or simple externalities in agriculture
-Recoupled measures are required in case of joint production
Joint Products and Public Goods
-Sub-optimal agricultural production
-Simultaneity of NTCs production
-Inefficiences of targeted and decoupled measures addressing simultaneously for various NTCs
POLICIES FOR MULTIFUNCTIONALITES
1.Recoupling Measures
-Concepts of recoupling; Just coupling private and public goods? or supports tied to price and input uses?
-Effects of direct payments of NTCs
-Inefficiency of targeted and decoupled policies
-Tremendous requirement of information and administration costs of direct payments
2.Differentiated Price Support
-Feasibility of policy implementation
-Any efficiency losses compared to uniform price supports?
3."Blue Box" as an Alternative Measure
4.Trade Policy and Environment