GTAP Resources: Resource Display
| GTAP Resource #1952 |
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"Varietal Utility and Patriotic Preference: The Case of European Agriculture" by Philippidis, George and Lionel Hubbard Abstract We suggest that opportunity cost estimates of the Common Agricultural Policy (CAP) may be overstated, with potential allocative efficiency gains offset by negative utility effects associated with the loss of domestic food varieties. This is based on an application of the theoretical result that protection of an industry in the presence of product differentiation and home-bias can be welfare-improving. To illustrate the effects of varietal diversity in foods on the economic cost of the CAP, we incorporate asymmetry in consumers’ preferences, based on region of origin and characterised by a single preferred (domestic) variety, in a CGE trade model with imperfectly-competitive food processing sectors and explicit representation of policy interventions. We show that consumer preference for domestically produced foods can create varietal utility in the EU sufficient to balance the economic cost of the CAP as conventionally measured. This varietal effect is most pronounced in meat processing which benefits from particularly high levels of tariff protection. However, an enlarged efficiency loss to the EU economy, via a greater misallocation of resources, means that the overall cost of the CAP is not eliminated. Moreover, whilst a varietal effect may mitigate the cost to the EU, universal application of the preference structure imposes an additional cost of the CAP on the rest of the world, arising effectively from a global redistribution of varietal utility. Thus, for the world as a whole, the net impact of the varietal effect is negligible, though the distributional impact, as might be expected, is much greater. Protagonists of the CAP who may wish to cite varietal utility as a benefit hitherto overlooked, need to be mindful of the global implications. |
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Last Modified: 9/15/2023 1:05:45 PM
