Endogenous Participation in Agricultural Support Programs and Ad Valoremequivalent Modelling

Abstract

This paper argues that a price wedge treatment of agricultural supports can seriously misrepresent their welfare and quantity effects. We make our point by focusing on pre-1985 US wheat programs, but features of programs in many other countries lead to comparable problems with the ad valorem approach. This line of argument raises questions over the current approach in the multilateral trade negotiations of negotiating on producer subsidy equivalents (PSEs), or some other subsidy-like measure.