Journal Article

Processing Industry Capacity and the Welfare Effects of Sugar Policies

Jeffrey C. Williams and Brooke A. Isham

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 81, issue 2, pages 424-441
Published in print May 1999 | ISSN: 0002-9092
Published online May 1999 | e-ISSN: 1467-8276 | DOI: http://dx.doi.org/10.2307/1244592
Processing Industry Capacity and the Welfare Effects of Sugar Policies

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Normally, analysis of policies affecting commodities such as sugar employs long-run comparative statics under certainty and ignores processing industries like cane-sugar refining, under the implicit assumption that the capital is malleable in both the short and long run. We present a dynamic model, calibrated to world sugar and solved with numerical dynamic programming, that includes the specific capital of the refining industry. When compared to an otherwise identical static model, the dynamic model suggests that some 20% of welfare losses may be misattributed to cane-sugar producers instead of refiners. In contrast, the difference between certainty and uncertainty proves to be unimportant.

Keywords: depreciation; dynamic programming; processing industry; short run; sugar policy; Q180

Journal Article.  0 words. 

Subjects: Agricultural Economics

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