Abstract
Many public policies discussed in previous chapters exist together and sometimes are implemented simultaneously. This may cause interactions between the policies and their political economy. This chapter analyzes both economic interaction effects (where one policy affects the distributional and welfare effects of other policies) and political interaction effects (when the existence or introduction of one policy affects the political incentives of governments to introduce or change other policies).
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Notes
- 1.
Trade policy reform and compensation have a long history in the economics literature, going back to the early analyses of Adam Smith and David Ricardo. A crucial element in the arguments on the optimality of free trade are that the gains of the winners of trade liberalization are more than sufficient to compensate the losers of reform, an issue which has clearly become highly relevant again in recent years with discussions on the gainers and losers from globalization.
- 2.
Trade policy reform and compensation have a long history in the economics literature, going back to the early analyses of Adam Smith and David Ricardo. A crucial element in the arguments on the optimality of free trade are that the gains of the winners of trade liberalization are more than sufficient to compensate the losers of reform. The study of trade policy reform and compensation includes many important contributions (e.g. Bhagwati 1971; Corden 1969; Heckscher 1949; Stolper and Samuelson 1941). In recent years there is a renewed interest in the role of compensation schemes in coping with trade liberalization adjustment, which has been stimulated by recent research on the nature of the structural changes that take place in an economy following liberalization (Kletzer 2004).
- 3.
Modeling such joint policy decisions is complex and the identification of equilibria may be difficult, in particular when decision-making institutions are modeled explicitly (see, e.g. Pokrivcak et al. 2006).
- 4.
Alston, Edwards, and Freebairn compare the benefits from cost-reducing research in the presence of different commodity policies with the benefits from research under free-market conditions. This analysis is identical to calculating the impact of cost-reducing research on deadweight costs of existing commodity policies (Alston and Martin; Anania and McCalla).
- 5.
Swinnen and de Gorter (1998) analyze the consequences of endogenizing commodity policies for the size and distribution of research benefits for different policies (target price with deficiency payments and import tariffs) and for three alternative decision-making models of government: (1) guaranteeing a minimum income, (2) maximizing a weighted utility function, and (3) maximizing political support.
- 6.
These results reinforce the conclusion that PARI and commodity policies are complementary because under general assumptions PARI reduces deadweight costs per unit of transfer (see Swinnen and de Gorter (1998) for an analysis with more cases).
- 7.
The identification of the jointly determined political economy equilibrium requires a complex model. For a formal model and equilibrium and comparative statics derivations, see de Gorter and Swinnen (1998).
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Swinnen, J. (2018). Policy Interactions. In: The Political Economy of Agricultural and Food Policies. Palgrave Studies in Agricultural Economics and Food Policy. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-50102-8_13
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DOI: https://doi.org/10.1057/978-1-137-50102-8_13
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