Efficiency of Farm Programs, the Gains from Trade, and Compensation

Andrew Schmitz, S. Weyerbrock, James Vercammen
March 1992  [92-GATT 16]

In a recent paper (Rausser, forthcoming 1992), Vercammen and Schmitz analyzed the relationship between efficiency of farm programs and their trade-distorting effects. They found that, in general, the more efficient a farm program, the lesser the trade-distorting impact. Exploration of the final link is now required; this is the relationship between efficiency of farm programs, compensation, and the grains from trade. Policymakers in the GATT process ultimately are interested in this question, since the larger the grains from trade liberalization, the greater the efforts devoted toward achieving freer trade. In addition, no link has not been explored between efficiency of farm programs and the degree to which compensation is needed to move from an inefficient to an efficient program. In other words, how much compensation is needed for the losers in order to achieve an efficient policy outcome?

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