Production Subsidies Research Articles

THE IMPACT OF SUBSIDY POLICY FOR COMPETITIVENESS OF PADDY FARMING IN GORONTALO PROVINCE, INDONESIA

Abstract: The aims of this research are 1) to analyze the policy impact of input and output subsidies to paddy-rice competitiveness, and 2) to analyze the comparative and competitive advantages of paddy farming in Gorontalo Province, Indonesia. The research conducted at Gorontalo Province. The method use Policy Analysis Matrix (PAM) to measure the competitiveness parameters such a Domestic Resources Cost Ratio (DRCR) as a ratio for comparative advantages and Private Cost Ratio (PCR) as a ratio for competitive advantages. Meanwhile, PAM also measure the protection coefficients, such a Nominal Protection Coefficient on Output and Input (NPCO and NPCI), Effective Protection Coefficient (EPC). In additional, Producer Subsidy Equivalent (PSE) was used to measure a relative incentive for producers (farmers). Consumer Subsidy Equivalent (CSE) was used to measure a relative incentive for consumer. The results showed that NPCO and NPCI are 1.35 (there’s government protection for output/ rice) and 0.42 (there’s protection for inputs or subsidies for tradable inputs), respectively. The result of the EPC is 1.51. EPC> 1 indicates that government protection works effectively to rice commodity. Based on PAM analysis, PCR and DRCR values in this study were 1.14 and 1.52, respectively. PSE obtained value of 0.33 which indicate that producers (farmers) are not receiving direct or indirect incentives from government subsidy policies. CSE obtained results -0.27 at the level of actual prices and -0.37 at the border price. It indicates that consumers lost a surplus of 27% of the domestic rice price on average, or 37% of the border price.

Determinants of intention and behavior of low carbon commuting through bicycle-sharing in China

The transport sector produced numerous global greenhouse gas emissions in China. It is important to promote low carbon commuting in China. This paper aims to investigate the determinants of intention and behavior of low-carbon commuting through bicycle-sharing (LCB) in China. Theoretical model and hypotheses are put forward by integrating the theory of planning behavior and theories of value and residual effects. Through structural equation model (SEM), the empirical analysis revealed that residual effect has the largest positive impact on intention of LCB for both males and females. Subjective norms positively affected intention of LCB for males. Attitude towards bicycle-sharing, perceived behavioral control positively affected intention of LCB for females. Intention has higher positive effect on females' behavior of LCB than males’. It is better for government to increase financial subsidies for bicycle-sharing users and producers.

Prescribing for the tourism-induced Dutch disease: A DSGE analysis of subsidy policies

Tourism-induced Dutch disease can be particularly detrimental to small open economies due to deindustrialization and potential long-term welfare loss. This study adopts an innovative macroeconomic modelling tool, dynamic stochastic general equilibrium modelling, to investigate the effects of external inbound tourism booms on the national economic account of a small open economy. The results confirm the existence of Dutch disease, but tourism booms also bring welfare gains to the destination country. We further model the effects of two strategies to mitigate the Dutch disease by assuming that the government can tax the tourism sector and subsidize the manufacturing sector in two ways: production subsidies and investment subsidies. The results show that the effectiveness of production subsidies is very modest, while investment subsidies can almost completely overturn the Dutch disease. In terms of welfare, investment subsidies lower welfare gains in the very short term, but the positive effects persist over the longer term, which is different from the production subsidy case. Last, practical implications are provided.

How the removal of producer subsidies influences oil and gas extraction: A case study in the Gulf of Mexico

Since producer subsides can entail significant economic, fiscal, social and environmental costs, governments have been increasingly interested in removing them. Although many studies have been done on reducing consumer subsidies, subsidies to fossil fuel production are rarely discussed by scholars. This paper seeks to fill this void by developing an economic optimization model for oil and gas extraction to analyze the effects of producer subsidy removal. We forecast field-specific costs for exploration, development and production through constructing functions for the number of wells drilled and producing wells, production and economic limits. Various scenarios of phasing out producer subsidies in U.S. federal and state regulation on optimal production using field data from the Gulf of Mexico are simulated, including removing royalty relief, amortization of geological and geophysical costs, and percentage depletion. The results show that removal of producer subsidies reduces the optimal production rate and investors' net present value and increases government revenue, but the total effect is a cost of net social benefits. Changes in both the discount rate and oil price have positive effects on optimal production, but they exert opposite effects on producer benefits. Our research is helpful for policy-makers to regulate an efficient subsidy removal path.

The Historical Evolution of Alternative Metrics for Developing Countries’ Food and Agriculture Policy Assessment

The demand for quantitative assessments of the impacts of food and agricultural policies has grown steadily in the past four decades. From the application of social cost-benefit analysis to investments in developing countries in the 1970s to the use of increasingly sophisticated general equilibrium models today, the menu of available techniques for policy assessment has expanded rapidly. In addition, both partial and general equilibrium models have been developed to analyze world markets for agricultural commodities and the effects of government policies on such markets. Alongside the modeling of markets and the quantitative impact of policies, several indicators have been developed that build on trade policy measures, including effective protection and tariff equivalents. One example is the producer subsidy equivalent. This has been used by the OECD to estimate the level of support provided by government policies to the agricultural sector. The indicators have more recently been applied to developing countries as a form of benchmarking to give a snapshot of the transfers among stakeholders inherent in such policies.

Regulatory impact assessment for implementing energy efficient lighting standards in the small island developing state of Antigua & Barbuda

A regulatory impact assessment (RIA) was conducted to provide information and analyses to support government decision-making on policy and conformity assessment options for adoption of proposed energy efficient lighting standards in the Caribbean island nation of Antigua and Barbuda. The methodology comprised of a multi-criteria assessment methodology coupled with perceptual cost effectiveness assessment, based on primary data obtained from an expert panel. Findings suggest that a voluntary incentive policy with intervention in the consumer market such as a product subsidy possibly coupled with a product exchange scheme in phased approach towards a mandatory obligation to energy efficient lighting products could be the way forward. Findings also suggest suitability of a third-party conformity assessment approach whereby manufacturers/suppliers/importers will require certification for energy efficient lighting products by an approved, accredited entity before or upon local market entry. The RIA is useful to government policy makers seeking to justify and prioritize their available options for efficient and effective adoption of the proposed lighting standards. This study also introduces the RIA as an approach that should be institutionalized in the Caribbean region as a tool for data driven and evidence based policy decisions.

Russian Grain Exports in the Context of Regional Economic Policy

Over the past two years, Russia has become the world leader in grain exports and intends to maintain growth rates. The authors enter into polemics with scientists who estimate the export of grain as the success of the agrarian economy. The purpose of the study is to find arguments for proving that the current model of the food market formation is erroneous. This model is based on the export of grain in combination with the import of the food with high added value. Our hypothesis is that the export of grain abroad was the result of low demand in the domestic market, which is due to the structural deformation of agricultural production. The study is based on the works of scientists in foreign trade policy (D. Ricardo, F. List, B. Ulin, S. Witte, D. Mendeleev). Statistical data, include the period before the embargo on food (2012–2014) and after it (2015–2016). In the conditions of inflation, preference was given to the indicators of the physical volume of output. The situation on the food market is complicated by a decrease in consumer demand and a fall in real incomes of the population. The imposition of an embargo on food imports reoriented imports to other countries. We propose measures of state regulation of the agro-food market: the introduction of export duties on grain and export subsidies for products with high added value. The research results can be used to develop mechanisms for regional economic policy in the agro-food sector.

Competition among Supply Chains and Governmental Policy: Considering Consumers' Low-Carbon Preference.

Many manufacturers and retailers have cooperated for low-carbon production in various industries. This study examines the role of consumers’ low-carbon preference in this cooperation. We construct four scenarios to investigate the effects of consumers’ low-carbon preference on the market equilibrium of supply chains’ product selection strategy. Based on the game theoretic models, optimal solutions for the two supply chains are derived with different consumers’ preference for low-carbon products. Through the discussion, we uncovered the influence of consumers’ preference on price and demand and the relationship between the influence coefficient of retailers’ promotional effort on consumers’ utility and retailer profits. In addition, given the increase of government’s low-carbon production subsidy, two supply chains will both more likely choose low-carbon production. Interestingly, under the government subsidy, the profit of manufacturer will increase or decrease more than its retailer and the market structure will not change if the two supply chains have chosen low-carbon production.

The government’s optimal subsidy scheme under Manufacturers’ competition of price and product energy efficiency

As motivated by various Chinese government’s subsidy schemes (e.g., promoting energy-efficient home appliances in 2007, energy-saving automobiles in 2010, and green and efficient agricultural machinery in 2018), we study a government’s optimal subsidies for energy-efficient products in a market with two competing firms. The firms differ in their production costs and compete on their product prices and product energy efficiencies. The government subsidy scheme specifies the amount of subsidy and the certification threshold of the energy consumption level below which the product is certified for certain energy-efficiency/saving and is thus qualified for the subsidy. We first derive the subgame Nash equilibrium of the product prices and product efficiency strategies given the subsidy scheme. Interestingly, we find that if the subsidy is too low, it is possible that the low-cost firm will produce an uncertified product while the high-cost firm will produce a certified product. Furthermore, we derive the government’s endogenous optimal subsidy scheme under three different objectives, i.e., minimizing the total energy consumption, the average energy consumption per product, as well as the average energy consumption per unit of GDP. While previous studies show that minimizing the first two objectives are equivalent in a monopoly manufacturer setting, we show that they are not equivalent in our duopoly competition setting, and we demonstrate that minimizing the average energy consumption helps to sustain the product variety/duopoly outcome. Counterintuitively, when minimizing the total energy consumption, inducing the low-cost firm to produce an uncertified product and the high-cost firm to produce a certified product is optimal under some conditions. Moreover, we demonstrate that both the objectives of minimizing the average energy consumption per product and per unit of GDP result in the same equilibrium market structure.

Strategic Protective Trade Policy under Asymmetric Information

Recently, strategic protective trade policies are emerging. The strategic choices are a result of asymmetric information on demand parameters and a firm’s cost structure. In this paper, we will suggest the optimal policy of eliciting private information from domestic firms. The policy is a contract of menus, comprising a tariff and a production subsidy (henceforth, subsidy). When one domestic firm and another foreign firm compete in a duopolistic domestic market, we consider unilateral intervention of the domestic government. The domestic firm privately holds information on the industrial cost structure. The main findings are as follows. First, the two policies can be equivalent conditionally. We will provide conditions for equivalence. Second, the domestic firm has an incentive to misreport the industrial cost structure to the government. Using a menu of a tariff and a subsidy (in combination with a lump-sum transfer), the government can screen the domestic firm’s marginal cost. That is, the menu leads the domestic firm to disclose private information.

Pensions as Research and Production Subsidies

In this paper we study the relation between pensions and financial intermediation in an overlapping generations model with Schumpeterian growth and consumption shocks. We show that a financial intermediary may be unable to adequately isolate consumers from the shocks making a funded pension scheme equivalent to a research and production subsidy for the economy.

Warming temperatures will likely induce higher premium rates and government outlays for the U.S. crop insurance program

AbstractLikely climate change impacts include damages to agricultural production resulting from increased exposure to extreme heat. Considerable uncertainty remains regarding impacts on crop insurance programs. We utilize a panel of U.S. corn yield data to predict the effect of warming temperatures on the mean and variance of yields, as well as crop insurance premium rates and producer subsidies. While we focus on corn, we demonstrate that the subsidy impacts are likely to carry over to other major program crops. We find that warming decreases mean yields and increases yield risk on average, which results in higher premium rates. Under a 1°C warming scenario, we find that premium rates at the 90% coverage level will increase by 39% on average; however, there is considerable statistical uncertainty around this average as the 95% confidence interval spans from 22% to 61%. We also find evidence of extensive cross‐sectional differences as the county‐level rate impacts range from a 10% reduction to a 63% increase. Results indicate that exposure to extreme heat and changes in the coefficient of variation are large drivers of the impacts. Under the 1°C warming scenario, we find that annual subsidy payments for the crop insurance program could increase by as much as $1.5 billion, representing a 22% increase relative to current levels. This estimate increases to 3.7 billion (57%) under a 2°C warming scenario. Our results correspond to a very specific counterfactual: the marginal effect of warming temperatures under current technology, production, and crop insurance enrollments. These impacts are shown to be smaller than the forecasted impacts under a commonly used end‐of‐century general circulation model for even the most optimistic CO2 emissions projection.

Warming Temperatures Will Likely Induce Higher Premium Rates and Government Outlays for the US Crop Insurance Program

Likely climate change impacts include damages to agricultural production resulting from increased exposure to extreme heat. Considerable uncertainty remains regarding impacts on crop insurance programs. We utilize a panel of U.S. corn yield data to predict the effect of warming temperatures on the mean and variance of yields, as well as crop insurance premium rates and producer subsidies. While we focus on corn, we demonstrate that the subsidy impacts are likely to carry over to other major program crops. We find that warming decreases mean yields and increases yield risk on average, which results in higher premium rates. Current legislation sets producer subsidy payments as a percentage of the premium, so we simulate the impact of a 1°C warming scenario and find that annual subsidy payments will likely increase by as much as $850 million, representing a 13% increase relative to current levels. This estimate increases to 2.2 billion (34%) under a 2°C warming scenario. We also find evidence of extensive spatial heterogeneity of the premium rate effects. Our results indicate that the program level effects of climate change will increase both the cost of obtaining insurance for producers, as well as the governmental outlay required to subsidize this purchase.

The impact of government subsidy on supply Chains’ sustainability innovation

Motivated by recently observed industry and government practices, in this paper we endogenize government subsidy in a research joint venture (RJV). In particular, we present a three-player game in which a government determines the amount of subsidy for a supply chain consisting of a manufacturer and a retailer conducting an RJV on a sustainable product. In addition to the retail and wholesale pricing decisions, the firms must determine the level of innovation effort as well as the division of innovation costs between the partners. In our analysis we consider two forms of RJV formation (retailer and manufacturer initiated) and two types of subsidy (per-unit production subsidy and innovation effort subsidy). We find that: (a) the government should never use both types of subsidies simultaneously for any cost-reduction research and development (R&D) effort, (b) whenever effort subsidy is present the government is indifferent as to how the RJV is formed, and (c) even though firms benefit most from initiating the RJV in many cases, the manufacturer is worse off by initiating the RJV if R&D effort increases per-unit production cost, innovation or production cost is high and only per-unit production subsidy is present.

On competition and welfare enhancing policies in a mixed oligopoly

In a mixed quantity-setting oligopoly with an inefficient public firm, we investigate the optimal government intervention contrasting two different regulatory measures; (possibly partial) privatization and an output subsidy. We find that the effects of the policy implemented crucially depend on the decision timing. Using an interdependent payoff structure in the fashion of a delegation contract to model imperfect competition, we show that privatization incentives are generally larger if it takes place before private firms determine the degree of competition since, in this case, the private firms’ output is higher. On the contrary, if the regulator incorporates a production subsidy after the degree of competition is set, the private sector benefits from a high subsidy and achieves perfect collusion.

Supply chain leading models of building charging stations: Leaders, subsidy policies, and cost sharing

ABSTRACTConsumer willingness to pay for electric vehicles (EVs) is severely limited by their driving range. The expansion of a charging network could alleviate this dilemma. This paper focuses on determining whether the manufacturer or the dealer is more suitable to extend charging network. In scenario 1 (wholesale price is exogenous), M-Investing (the manufacturer invests on charging stations) better facilitates EV adoption at the early stage of EV market. By contrast, D-Investing (the dealer invests on charging stations) better facilitates the EV adoption when the market becomes mature. However, neither of the two investors have an incentive to offer building investment. In scenario 2 (wholesale price is a decision made by the manufacturer), M-Investing is consistently better than D-Investing in terms of facilitating EV adoption. The manufacturer is voluntary even with high building costs. In addition, we address two subsidy policies: producer subsidy and consumer subsidy, to determine which is more effective in facilitating EV adoption in M-Investing and D-Investing, respectively. Moreover, we extend our model by allowing cost sharing between the manufacturer and the dealer. We observe some cases in which the profit and the EV adoption level are improved.

Drivers and difficulties in the economic relationship between Australia and the European Union: from conflict to cooperation

ABSTRACTEconomic relations between Australia and the European Union (EU) have always been strong, but they have not always been easy. They have been difficult for Australia because it associated the EU with the loss of the UK preferential export market on its entry into the then European Economic Community. And because Australia associated the EU with the original Common Agricultural Policy, which combined subsidies for agricultural production and high agricultural tariffs to make Australian agricultural exports not competitive. They have been difficult for the EU also. Australia developed a biosecurity system to protect its agricultural sector: quarantine requirements and food safety standards made the importation of EU plant and animal products too costly. Yet Australia and the EU need each other. The EU, which is Australia’s largest services trade and investment partner, supplies the business services that drive a knowledge economy and provides the credit to finance economic development. Correspondingly, the EU needs Australia both as a commercial base in Asia and as a reliable energy supplier. This article analyses the drivers and difficulties in the economic relationship between Australia and the EU as they start negotiations for a free trade agreement.

The Strategic Exercise of Options Using Government Subsidies: An Analysis of Production Subsidies for the Ground Source Heat Pump

This study utilizes consolidation investment theory to incorporate with business strategies and government subsidy to develop a strategic exercise of options model. This empirical investigation examines the ground source heat pump (GSHP) government subsidy program, which is part of China’s 12th Five Year Plan. The developed model is applied to explain the behaviours of business investment with regard to strategic investment timing, option values, and the influence of government subsidies in duopolistic real-world investment decisions. The results indicate that subsidy policy can reduce the differences of investment timing among GSHP investors and has clearly evidenced the positive benefit–cost ratio of government subsidy, which facilitates China’s GSHP industry development.

Cost-Sharing Contracts for Energy Saving and Emissions Reduction of a Supply Chain under the Conditions of Government Subsidies and a Carbon Tax

To study the cooperation of upstream and downstream enterprises of a supply chain in energy saving and emissions reduction, we establish a Stackelberg game model. The retailer moves first to decide a cost-sharing contract, then the manufacturer determines the energy-saving level, carbon-emission level, and wholesale price successively. In the end, the retailer determines the retail price. As a regulation, the government provides subsidies for energy-saving products, while imposing a carbon tax on the carbon emitted. The results show that (1) both the energy-saving cost-sharing (ECS) and the carbon emissions reduction cost-sharing (CCS) contracts are not the dominant strategy of the two parties by which they can facilitate energy savings and emissions reductions; (2) compared with single cost-sharing contracts, the bivariate cost-sharing (BCS) contract for energy saving and emissions reduction is superior, although it still cannot realise prefect coordination of the supply chain; (3) government subsidy and carbon tax policies can promote the cooperation of both the upstream and downstream enterprises of the supply chain—a subsidy policy can always drive energy saving and emissions reductions, while a carbon tax policy does not always exert positive effects, as it depends on the initial level of pollution and the level of carbon tax; and (4) the subsidy policy reduces the coordination efficiency of the supply chain, while the influences of carbon tax policy upon the coordination efficiency relies on the initial carbon-emission level.

Allocating production risks through credit cum insurance contracts: the design and implementation of a fund for small cotton growers to access market finance

Collateral requirements that lenders place on small cotton producers can lead to risk rationing and to farmers’ dependence on downstream parties. This paper presents a cotton fund that consists of a set of contracts – credit, insurance, warrant and forward – that enables producers to tackle specific agricultural risks and gain access to market finance. These financial contracts proved to be successful at guaranteeing the fund as issuer of state-contingent debt securities in the capital markets. The fund, as an intermediary, lent to cooperatives to help finance small cotton producers in northern Argentina. The paper explains the experimental design of this innovative fund and presents a potential alternative to government intervention by moving away from ex post subsidies for small producers and, instead, facilitating ex ante private credit. The paper contributes to the literature on rural financial intermediation by designing a new mechanism to raise funds coming from relatively uninformed investors and creating collateral substitutes through delegated monitoring to overcome asymmetric information and limited commitment.