Abstract

Schmitz, Sigurdson, and Doering (SSD) (1986) consider whether gains from trade necessarily exist when an economy is distorted with programs. Their answer (p. 820) is that farm programs, such as production subsidies, in the presence of international trade barriers can completely eliminate any trade gains. Anania and Bohman (AB), while critical of some of the SSD analysis, agree (p. 739) that increasing the volume of trade through subsidies can lead to negative gains from trade. The authors of the original article summarize and extend some of their analysis using general equilibrium techniques in SSD (1988). In this note I show that trade gains remain despite the existence of the agricultural policies examined by SSD and AB. To allow a straightforward comparison to the SSD and AB papers, this question of trade policy is first analyzed from the perspective of standard economic objectives. The issue of noneconomic objectives is addressed later; in an example, I illustrate the point that optimal policy is dependent on the policy goal. Therefore, progress on the agricultural policy debate requires a clear statement of these goals and of the perceived market breakdowns which the policies are meant to redress. Trade economists have identified several distor-

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