ESSAYS ON AGRICULTURAL AND ENVIRONMENTAL POLICY

Postgraduate

 

Abstract

This thesis consists of a summary and four papers. The rest two papers address political economy and industrial organization aspects of agricultural policy, and the last two international aspects of environmental policy.

Paper [I] explains Common Agricultural Policy (CAP) subsidies to farmers by the influence of farmer interest-groups with an EU-wide membership. The analysis is based on panel-data for teen commodities over the period 1986 & 2003. Because the CAP is set as an overall EU policy, effective lobbying presents a collective action problem to the farmers in the EU as a whole. Indicators of lobbying, which are based on this perception, are found to explain part of the variation in agricultural support.

In Paper [II], the Bresnahan-Lau framework is used to analyze whether policy reforms, i.e. the two-price system (an input quota, 1986-1991) and a general deregulation of dairy policy (1991-1994) had any market power effects on the Swedish butter market. The results show that the null hypothesis of no market power cannot be rejected, for any of the specific policy reforms, at any reasonable significance level.

Paper [III] concerns the welfare consequences of environmental policy cooperation. It is assumed that countries enhance their public expenditures by using distortionary taxes, and that they differ with respect to competition in the labor market. It is shown how the welfare effect of an increase in the expenditures on abatement depends on changes in the environmental damage, employment and work hours. The welfare effect is also related to the strategic interaction among the countries in the prereform equilibrium.

In Paper [IV] environmental policy in an economic federation, where each national government faces a mixed tax problem, is addressed. It is assumed that the federal government sets emission targets, which are implemented at the national level. It is also assumed that the economic federation is decentralized. The results highlight a strategic role of income and commodity taxation, i.e. each country uses its policy instruments, at least in part, to in influence the emission target.

Keywords: agricultural policy, political economy, lobbying, cooperatives, market power, policy cooperation, distortionary taxes, labor market, Nash game, Stackelberg game, income and commodity taxation, economic federation, environmental policy


Agricultural Policy

Developed countries tend to support their producers of agricultural commodities heavily. For example, the CAP consumes about 40% of the total EU budget, while the agricultural sector employs less than 2% of the EU s workforce. The rst two papers in this thesis are attempts to shed some light on the determinants and consequences of the support to agriculture. Paper [I] deals with determinants of agricultural subsidies. More speci cally, the study assesses the in uence executed by transnational EU lobby groups (so called Euro-groups) on the CAP. As such, it relates to the literature on the political economy aspects of agriculture. The second paper concerns the e⁄ects of agricultural support policies. More speci cally, the problem addressed is whether such policies made it possible for domestic food producers to exercise market power. The paper studies the case of Swedish pre-EU agricultural policies, and whether speci c reforms had any market power e⁄ects for dairy cooperatives on the market for butter. This paper is primarly related to the literature on cooperatives and competition.

In the following, these two strands of the literature are reviewed and the respective paper summarized.


The Political Economy of Agriculture

Olson (1965) developed a framework of analysis (and applied it extensively to farm policy) that depicts a passive government responding to lobby activities by interest groups, who organize themselves for collective action. The policy outcome hinges critically on the ability to overcome costs of organization and free-riding. According to this framework, successful collective action is related to demographic factors, where the number of rms within the industry attempting to organize itself is the main indicator. The intuition is that the more rms there are within the industry, ceteris paribus, the greater the incentives for the individual rm to free-ride. Thus, the more likely it is that the e⁄ort made by any such rm is suboptimally low from the perspective of the industry as a whole. A negative relationship between the number of farms and agricultural support has been found by Olper (1998) on national European data, Helfand (2000) on Brazilian data, and Miller (1991), Fulginiti and Shogren (1992), Sarker et al. (1993), van Bastelaer (1998) and Swinnen et al. (2000) on cross-country data.

A second indicator for successful collective action has been derived by Bombardini (2005). According to her results, and given the size of the industry as a whole, the less homogenous the rms are in size, the greater the overall lobbying e⁄ort. This is because of certain minimal xed-costs of lobbying, which only the larger rms may be able to cover. With a more homogenous grouping, none may be able or motivated to lobby, whereas with a more heterogenous grouping at least large rms may be able to. Hence, the size-heterogeneity of an industry is a potential determinant of lobbying e⁄ort. Bombardini (2005) con rms this result empirically.