Beggar-Thy-Neighbor Advertising: Theory and Application to Generic Commodity Promotion Programs

CIES Working Paper No. 27

36 Pages Posted: 3 Aug 2000

See all articles by Julian Alston

Julian Alston

University of California, Davis - Department of Agricultural and Resource Economics

John W. Freebairn

University of Melbourne - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2000

Abstract

Mandated generic commodity promotion programs funded by commodity taxes, called check-offs, are important and controversial. Previous studies of benefits, and legislated requirements for evaluation, have focused on the own-producer effects of promotion. They have disregarded the costs or benefits experienced by producers of commodities not covered by the program but affected by it either directly or because of induced price changes.

In this paper, theoretical models are developed for a case where two producer groups each promote their own commodity, and the two commodities are closely related in consumption. In the likely case, promotion of each commodity has a positive own-commodity producer welfare effect and a negative cross-commodity producer welfare effect, and each producer group will spend less on promotion if they take effects on other producers into account than if they consider only the within-group welfare effects; accordingly, from a broader social perspective, commodity programs are likely to overspend on promotion.

An application uses 1994 data on prices, consumption, and advertising expenditures on U.S. beef and pork to illustrate the effects of generic advertising of beef and pork, taking account of cross-commodity effects of advertising and price changes. We quantify the beggar-thy-neighbour non-cooperative outcome and the joint optimum, and discuss the policy implications of the comparison.

Keywords: Excessive Advertising, Mandated Commodity Promotion Programs, Cooperative And Non-Cooperative Solutions, U.S. Beef And Pork

JEL Classification: L50, M37, Q13, Q18

Suggested Citation

Alston, Julian and Freebairn, John W., Beggar-Thy-Neighbor Advertising: Theory and Application to Generic Commodity Promotion Programs (May 2000). CIES Working Paper No. 27, Available at SSRN: https://ssrn.com/abstract=231112 or http://dx.doi.org/10.2139/ssrn.231112

Julian Alston

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States

John W. Freebairn (Contact Author)

University of Melbourne - Department of Economics ( email )

Victoria 3010, 3010
Australia

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