Measuring the welfare costs of supply management: The role of indirect benefits

Abstract

This study indicates that it is important to take into account what happens in other markets when evaluating the social costs of government agricultural programs. However, indirect benefits (costs) accruing in other markets are only to be measured if those markets are distorted (price does not equal marginal cost). An empirical application from supply management in Canadian agriculture is provided. The results suggest that, if other markets are ignored, the social costs of supply restrictions may be overestimated by 50 percent. This is quite a large relative error indeed if one is interested in evaluating public policy from a social welfare standpoint. Copyright 1990 by Oxford University Press.