The Welfare Impact of Orderly Marketing Agreements for Nonrubber Footwear

Abstract

The objective of this paper was to estimate the welfare loss from the implemen tation of Orderly Marketing Agreements (OMAs) for nonrubber footwear with Taiwan and Korea. Partial equilibrium analysis was used to estimate the welfare loss based on price and quality changes due to the OMAs. Actual prices and quantities were derived from trade data while estimated prices and quantities were based on pre and post OMA data, and the price elasticity of demand for imports. Loss estimates were obtained from 1977/78 to 1980/81 and were dis counted to 1977/78 using a 10 percent discount rate. The present value of the welfare loss, in constant 1977/78 dollars, was $366 million with Taiwan accounting for more than 80 percent of this loss. The consumer loss was $342 million, re flecting higher prices paid by consumers and losses incurred by consumers who left the market due to higher prices. The fact that the OMAs were imposed on two major low cost exporters to the U.S. also meant that low income consumers bore a disproportionate share of the cost of protecting the domestic footwear industry.