When Is Reliance on Voluntary Approaches in Agriculture Likely to Be Effective?

That's the title of a paper by Kathleen Segerson recently published in the Applied Economics Perspectives and Policy.  Although I think she under-estimates the power of factors like reputation and over-estimates the ability of government solutions to efficiently coordinate actions, she offers a useful discussion that we ought to have more often.  The abstract:

Voluntary approaches have been used in a variety of contexts and for a variety of purposes in agriculture, including voluntary conservation programs and product labeling. This paper provides an overview of some of the general principles that emerge from the literature on voluntary approaches and their application in agriculture. The literature suggests that, to be effective, voluntary approaches must provide sufficiently strong participation incentives to a targeted population, clearly identify standards for behavior or performance that ensure additionality and avoid slippage, and monitor outcomes. Thus, reliance on voluntary approaches in agriculture is likely to be effective only if there is sufficient market demand for certain product characteristics, significant public funds are committed to pay for voluntary actions, or the political will exists to impose regulations if voluntary approaches fail.

Farm Subsidies and Input Use

I was recently looking back at The Undercover Economist written by Tim Hartford about 8 years ago.  It definitely belongs in the cannon of pop-econ books along with The Armchair Economist (my favorite), Naked Economics, and Freakonomics.  

In any event, I was intrigued to see this graph Hartford included on the relationship between agricultural subsidies and fertilizer use.  

Ban Beer?

The abstract of recent article from the journal Economic Inquiry:

Few studies explore the linkages between health behaviors and macroeconomic outcomes. This study uses 1971–2007 state-level data from the United States to estimate the impact of beer consumption on economic growth. We document that beer consumption has negative effects on economic growth measures once the endogeneity of beer consumption is addressed. Our estimates are robust to a range of specification checks. These findings run parallel to a large body of literature documenting substantial social and economic costs stemming from alcohol use.

If we apply the same logic the FDA used to justify banning transfats, then clearly beer must be also banned.  Prohibition redux.  

I also have to wonder whether beer consumption is causing lower growth or whether lower growth is causing beer consumption.  Or whether higher growth states are shifting from beer to wine consumption.   Or whether there is some third factor, like unemployment, that drives lack of growth and beef consumption.  The authors tried to address some of these questions in their analysis, but it isn't clear how well their approach controls for these problems problem.  

(HT: Andreas Drichoutis)

Stiglitz on Farm Policy

The Nobel Prize winning economist, Joseph Stiglitz, weighs in on recent farm bill debates in the New York Times.  Here are a few excerpts

American food policy has long been rife with head-scratching illogic. We spend billions every year on farm subsidies, many of which help wealthy commercial operations to plant more crops than we need. The glut depresses world crop prices, harming farmers in developing countries. Meanwhile, millions of Americans live tenuously close to hunger, which is barely kept at bay by a food stamp program that gives most beneficiaries just a little more than $4 a day.

and

FARM subsidies were much more sensible when they began eight decades ago, in 1933, at a time when more than 40 percent of Americans lived in rural areas. Farm incomes had fallen by about a half in the first three years of the Great Depression. In that context, the subsidies were an anti-poverty program.

Now, though, the farm subsidies serve a quite different purpose. From 1995 to 2012, 1 percent of farms received about $1.5 million each, which is more than a quarter of all subsidies, according to the Environmental Working Group. Some three-quarters of the subsidies went to just 10 percent of farms. These farms received an average of more than $30,000 a year — about 20 times the amount received by the average individual beneficiary last year from the federal Supplemental Nutrition Assistant Program, or SNAP, commonly called food stamps.

Unlike Stiglitz, I do not believe that the food stamps program is a sacred right that should be protected at all costs (I'm sure that's not his precise view but that's the way this piece reads), but he is right on the optics of the farm bill which, as he says, is

 taking from the poor to subsidize the rich.

Those are the optics but I'm not even sure that those are right.  It is not as though the poor are paying the farm subsidies.  Most of the taxes are paid by the rich.  So, farm policies are taking from the less-well organized rich to subsidize the better organized rich.

Transfat Ban

No doubt most of you have heard by now of the FDA's plans to ban transfats .  I've had a few reporters ask about my thoughts on the issue, so I thought it would be useful to pass them along here.

First, from my reading of the research (and I will admit to being no expert on the issue), it does seem that consumption of "synthetic" transfats have deleterious health effects.  Interestingly, however, a few studies show that "natural" transfats from animal sources may not be as unhealthy, despite having similar chemical compositions as the "synthetic" transfats.  

The question before us isn't whether certain transfats are unhealthy - they are - but rather: what is the government's role in regulating transfats?  The move in recent years to educate the public on the scientific evidence, and even to require labeling of transfats on nutritional facts panels, is reasonable in my opinion given the established safety risks.  And indeed, almost every story I've read on the issue shows that these efforts alone caused a significant voluntary drop in use and consumption of transfats.  The trouble comes when some third party - the FDA in this case - moves from informing public about risks to making the decision for us.  The government has moved from the role of impartial referee conveying the rules of the game to a player in the game picking sides.

Many of the news stories point to the number of "lives saved" if a ban on transfats were implemented.  But, this is misleading when discussed without context.  We could save many more lives each year if the government banned driving.  Many lives could also be saved if we banned alcohol and went back to prohibition.  Skydiving is risky - why not ban that too?  The reasons is that many risk activities convey benefits to the public that must also be considered.  

What are the benefits from the use of tranfats in food?  Taste.  Mouthfeel.  Cost.  Improved shelf life.  What would be the costs of removing transfats?  Higher food prices.  Manufacturers may have to add more sugar or salt or more saturated fat to compensate for the loss of transfats.  The point is that any discussion of the benefits of a ban on transfats must be considered in the context of the costs of the ban.

Even if a ban passed a narrow cost-beneft test, I think we'd also want to ask whether the infringement on freedom of choice can be justified on logical grounds.  Stated differently, where is the market failure? Normally, economists identify market failures if there are price-altering market powers, externalities, public goods, or information asymmetries.  Only the later of these, in my opinion, has any credibility, but with the existence of labels, even that is no justification.  That leaves only one primary motive for the ban: the dim view that the public is unable to properly weight the risks themselves and are in need of paternalistic intervention.  Of course, government officials won't come right out and tell us that their motivation is our perceived ineptitude  because we'd rightly rebel against such a condescending attitude.       

One last point: it seems pretty clear that the provision of information via labels, and resulting consumer demands, induced innovation by food companies to come up with ways to do without transfats.  But, is it possible that a ban could hinder innovation?  As I've already mentioned, all transfats are not created equal.  Is it possible for scientists to develop new fats that convey some of the same beneficial properties as existing "synthetic" transfats without the health risks?  I don't know.  And we may never know if we institute a blanket ban.