New Approaches in Agricultural Policy Research: Discussion

Abstract

The extent to which economists' advice is useful, sought after, and followed is a source of contention and frustration among economists. The implicit message from Hallam's and Buccola's papers is that welfare economics has a great tool kit that with small modification can be used for the analysis of almost any agricultural policy issue. Just has conveyed the opposite perception. Economists' advice is ignored as irrelevant. He presents a variety of suggestions for improvement and change, but overall he conveys a pessimistic mood. We do not share Just's pessimism. We perceive a gradual improvement in the role and importance of economics and economists in the agricultural and natural resource policy areas. Important U.S. government agencies, e.g., EPA, USDA, BLM, Army Corps of Engineers, have increasingly adopted economic principles, decision rules, and models and incorporated them into their policy analysis. Economists are being included in the forums and positions of power from which they have previously been excluded. Economic consulting firms supplying advice and analyses for government policies are flourishing. Economists appear to have broken the hold of engineers, lawyers, and agronomists in supplying the intellectual input and framework for decision making. Obviously, progress is slow, members of other disciplines will resist encroachment, but the influence of economists is increasing. The frustrations and pessimism conveyed by Just's talk are nonetheless positive. Such self-criticism has been the driving force making welfare economics more useful and palatable and thus more influential. When the elegant results of early theory were ignored, economists were forced to ask what they had ignored, what the needs of the clients were, and how they might be served better. Economists' desire to be heard and influential and their (inherent) inability to achieve complete success are the main forces in an induced innovation process that propels the evolution of the subject. With this in mind, we distinguish four phases in postwar welfare economics. First came the efficiency era, when Paretian criteria and compensation principles were developed and refined. These criteria led to applied decision tools that aimed to obtain efficient outcomes. The lack of popular appeal of efficiency-intensive welfare tools led to the equity stage, when policies and procedures to improve equity and distribution were considered. The basic premise behind this area of research was the potential for separating efficiency and equity considerations, at least as far as production decisions were concerned. Second-best welfare economics at last obtained a firm theoretical base in the theorems of Diamond and Mirrlees (1971). This premise was challenged in the succeeding information age. In this stage, developments associated with the new industrial economics and theories of decision making under uncertainty were used to illustrate how problems of enforcement, ignorance, and other imperfections shatter some of the long-held claims of welfare economics, and it was suggested that these informational considerations play a paramount role in policy design. The fourth phase, which Just appears to be advocating, is the public choice critique of social welfare-based theory. In this view, the crucial weakness of second-best welfare eco-