Wine Taxes, Production, Aging and Quality

We consider the impact of taxes on the quantity and quality produced of goods, such as wine, for which market value accrues with age by a competitive producer. Any pair of taxes that includes a volumetric sales tax and any one of three other types of tax – an ad valorem sales tax, an ad valorem storage tax, or a volumetric storage tax – spans the full range of feasible tax revenues with positive tax rates. For any tax system that reduces quality relative to the firm’s no-tax equilibrium, there is another tax system that increases tax revenues, eliminates the quality distortion, and does not increase the quantity distortion. Many wine industry observers believe that most, if not all, existing tax systems tend to result in the suboptimal provision of quality. Our results suggest that the wide variety of wine tax systems is not prima facie evidence that these systems, or most of them, are inefficient. Provided the system includes a volumetric sales tax it may be efficient, regardless of which of the other instruments, or how many of them, are used. Assertions regarding inefficiency must be evaluated on an empirical case-by-case basis. Our analysis provides a theoretical framework for such research.aging, Alchian-Allen effect, tax policy, wine

A Fully Calibrated Generalized CES Programming Model of Agricultural Supply

The use of prior information on supply elasticities to calibrate programming models of agricultural supply has been advocated repeatedly in the recent literature (Heckelei and Britz 2005). Yet, Mérel and Bucaram (2009) have shown that the dual goal of calibrating such models to a reference allocation while replicating an exogenous set of supply elasticities is not always feasible. This article lays out the methodological foundation to exactly calibrate programming models of agricultural supply using generalized CES production functions. We formally derive the necessary and sufficient conditions under which such models can be calibrated to replicate the reference allocation while displaying crop-specific supply responses that are consistent with prior information. When it exists, the solution to the exact calibration problem is unique. From a microeconomic perspective, the generalized CES model is preferable to quadratic models that have been used extensively in policy analysis since the publication of Howitt’s (1995) Positive Mathematical Programming. The two types of specifications are also compared on the basis of their flexibility towards calibration, and it is shown that, provided myopic calibration is feasible, the generalized CES model can calibrate larger sets of supply elasticities than its quadratic counterpart. Our calibration criterion has relevance both for calibrated positive mathematical programming models and for “well-posed” models estimated through generalized maximum entropy following Heckelei and Wolff (2003), where it is deemed appropriate to include prior information regarding the value of own-price supply elasticities.Positive mathematical programming, generalized CES, supply elasticities, Crop Production/Industries, Production Economics,

Communication and equilibrium in discontinuous games of incomplete information

This paper offers a new approach to the study of economic problems usually modeled as games of incomplete information with discontinuous payoffs. Typically, the discontinuities arise from indeterminacies (ties) in the underlying problem. The point of view taken here is that the tie-breaking rules that resolve these indeterminacies should be viewed as part of the solution rather than part of the description of the model. A solution is therefore a tie-breaking rule together with strategies satisfying the usual best-response criterion. When information is incomplete, solutions need not exist; that is, there may be no tie-breaking rule that is compatible with the existence of strategy profiles satisfying the usual best-response criteria. It is shown that the introduction of incentive compatible communication (cheap talk) restores existence

CAUSES OF MULTIFUNCTIONALITY: EXTERNALITIES OR POLITICAL PRESSURE

Resource /Energy Economics and Policy,

Burden Sharing and Public Good Provision: A Numerical Sensitivity Analysis

This paper reports on our numerical analysis of the model developed in Rausser-Simon 1991a and 1991b. We will assume that the reader is thoroughly familiar with the latter paper and refer frequently to the terminology introduced there. Two conclusions were readily apparent from the paper. First, many of the more interesting comparative statics questions we want to ask about the model are unlikely to have simple and determinate answers. In particular, it is especially difficult to determine the impact on alliance performance of certain kinds of changes in the spatial configuration and distribution of power within the alliance. The reason is that the fortunes of different alliance members are intertwined in highly intricate ways. Distributional changes set off a chain of conflicting events that are extremely difficult to disentangle

Agri-environmental Policy in the European Union: Who's in Charge?

The EU has argued that some agricultural subsidies are needed to provide the optimal amount of externalities (both positive and negative) produced by agriculture. The argument is that agriculture is "multifunctional" and externalities such as rural development and landscape would be underproduced, while some forms of pollution (such as nitrogen runoff) would be overproduced without government intervention. Meanwhile, the United States has raised the concern that multifunctionality is primarily an argument to transfer income to producers. One way to try and determine how much of these non-commodity payments are directed to externalities and how much is intended to distribute income to producers is to analyze the variation of the programs among the different member states of the EU. We estimate the degree to which environmental characteristics, agricultural characteristics and political economy variables determine the objective and amount of funding each member states uses to address environmental externalities (both positive and negative). Results indicate that little of the variance in agri-environmental expenditure can be explained by the difference in negative externalities, neither is there clear evidence that the payments are substituting for traditional agricultural subsidies. However, demand for environmental services and political variables seem to be the driving motivators behind a country's decision to spend money on agri-environmental programs.Environmental Economics and Policy,

Instructional Manual for Multilateral Bargaining in Public Decision Making

This paper describes a laboratory experiment design that has been developed to assess a new political economy institution for possible use in trade negotiations. The objective of this paper is to explain the implementation of this experimental design in the context of a horizontal model of a political economy. This environment is much more complex, and in a sense more realistic than the simpler environments considered in our [1990] companion paper. In Section 2 we briefly describe a general Multilateral Bargaining institution once again, so as to make the present discussion self-contained. In Section 3 we describe the present focus on a horizontal model. In Section 4 we run through in some detail the numerical solution to the parameterized version of that model. Finally, in Section 5 we detail the use of computer software that has been developed to implement the laboratory experiments with the Multilateral Bargaining institution proposed here

Political Economy of Alliances: Structure and Performance

In collective decision making, political alliances naturally arise and are critical to the negotiation processes that lead to the actual implementation of decisions. In the present context, an alliance refers simply to a group of political actors who share common, but not identical, interests against some adversary. In this paper we focus on the relationship among three constructs: the structure of an alliance, the context in which negotiations take place, and the performance of the alliance. The term alliance structure refers to the configuration of alliance members\u27 preferences as well as to their bargaining attributes. The context of negotiation refers to the rules of the bargaining game, including such factors as the structure of admissible coalitions and the range of allowable policy proposals. Alliance performance refers to the alliance\u27s effectiveness in furthering its members\u27 common objectives through the negotiation process. For example, if the space of issues can be represented in an Edgeworth box, a natural measure of alliance performance might be the location of the negotiated solution along the contract curve

A Noncooperative Model of Collective Decision Making: Multi-Lateral Bargaining Approach

This paper proposes a noncooperative model of multilateral bargaining. The model can be viewed as an extension of the famous Stahl-Rubinstein bargaining game. Two players take turns proposing a division of a pie. After one player has proposed a division, the other can accept or reject the proposal. If the proposal is accepted, the game ends and the division is adopted; if it is rejected, the second player then makes a proposal, which the first player then accepts or rejects. And so on. In Stahl\u27s formulation, the game continues for a finite number of rounds; in Rubinstein\u27s extension, the number of rounds is infinite. We propose a generalization of this model to incorporate multiple players and multidimensional issue spaces. We consider a sequence of games with infinite bargaining horizons, and study the limit points of the equilibrium outcomes as the horizon is extended without bound. A novel feature of our model is that the proposer is chosen randomly by nature in each round or bargaining, according to a prespecified vector of strictly positive access probabilities

Burden Sharing and Public Good Investments in Policy Reform

Any attempt to reform existing public policies or to implement new policies faces an arduous negotiation process and the tyranny of the status quo. One of the basic premises of the Uruguay Round of the GATT is that the reform of border policies could not be sustained without dramatic modification of internal agricultural policies. In October of 1989, the United States tabled a proposal for reforming internal policies of the agricultural sector throughout GATT signatory countries. In essence, this tabled proposal specified policies in terms of three regimes: red light, green light, and yellow light policies. Red light policies were to be forbidden; green light policies were to be promoted; and yellow light policies were to be treated on a case-by-case basis. Quite obviously, green light policies include public good provisions that promote economic growth and do not involve coupled distortionary transfers