Johnson, Ruth T.

McManus, B.R.

English

Research Papers in Economics

SOUTHERN  JOURNAL  OF  AGRICULTURAL  ECONOMICS  DECEMBER,  1981
REPLY:  A  THEORETICAL  FRAMEWORK  FOR  ANALYZING  SOCIAL  COSTS
OF  THE  TOBACCO  PROGRAM
Ruth T. Johnson and B.  R.  McManus
The  authors  commend  Stennis  and  Fuller for  elasticity at the retail level.  However, the overall
their  in-depth  examination  and  comment.  Such  conclusion  reached  by  both  the  authors  and
close  scrutiny  and  refinement  are  essential  in  Stennis and Fuller is that, under the assumptions
bridging  the  gap  between  the  theoretical  model  of the model, the effect of the tobacco program is
and  its empirical application  to  policy issues.  In  a net reduction in  social  costs.  A  determination
much of welfare economics the necessary simpli-  of the  amount  of  the  reduction  requires  addi-
fication  and abstraction from reality of the theo-  tional empirical investigation both as to the accu-
retical  model  prohibit  its use  in the  direct mea-  rate determination  of the  elasticities  of demand
surement  and  quantification  of social  costs  and  and  supply to  be used  and  the methodology  for
benefits.  Nevertheless,  the  theoretical  model  measuring  social costs associated  with tobacco.
serves  a  purpose  in  analyzing  the  problem  at  The authors  thank Stennis  and Fuller for call-
hand and in comparing relative costs and benefits  ing  attention  to  the  omission  in  noting  that
of alternative  policy  strategies.  The  purpose  in  pounds  of tobacco  produced  are  reported  in
presenting  the  theoretical  model  was  to  show  thousands.
how  one  might  go about  comparing  the  present  Their  mention  of  the  taxation  on  tobacco  is
tobacco program with a policy option that would  well taken.  The reported theoretical model could
abolish  price  supports  and  output  restrictions  be  further  developed  to  incorporate  and  recog-
and  presenting  the  calculations  for  illustrative  nize  the  tobacco  taxation  issue.  In  addition,
purposes  only.  further  development  in  this  policy  area  might
Stennis  and Fuller  show that the model  is ex-  consider  the  income  distribution  effects  of the
tremely  sensitive to changes in the demand elas-  tobacco  program.  Such  a model,  as  further de-
ticity  used in the calculations.  The authors  con-  veloped  and  refined,  could  also  be  applied  to
cur  on this point and  acknowledge  that changes  products  or commodities  other than tobacco  for
either  in the  demand  or  supply  elasticities  will  which it can be  shown  that social  costs are  not
affect the results of the  model.  As mentioned  in  fully  incorporated  in the  supply  curve.  The  net
the  paper,  we  recognize  that the  farm-level  de-  effect  upon  social  costs  of  output  restriction,
mand elasticity  (derived  demand)  is necessarily  taxation,  or price  supports could  then be  deter-
more  inelastic  than  the  corresponding  demand  mined.
Economist, Oak  Ridge Associated  Universities;  Professor, Department  of Agricultural  Economics and  Rural  Sociology,  University  of Tennessee,  respectively.
159I

REPLY: A THEORETICAL FRAMEWORK FOR ANALYZING SOCIAL COSTS OF THE TOBACCO PROGRAM

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics