Measuring the social costs of suboptimal combinations of policy instruments: A general framework and an example

Since most agricultural programs employ two or more policy instruments simultaneously, it is notable that little research has attempted to find optimal instrument combinations and no research exists which evaluates the social costs (unrealized benefits) of combining instruments suboptimally. In our paper we report a simple and feasible method to find optimal policy instrument combinations, and we provide the first general, formal approach to measuring the social costs of suboptimal policy instrument combinations. Our approach is illustrated in an analysis for five major U.S. crops (com, feed grains, wheat, rice, cotton). The simple model we employ for the illustration suggests that except for the feed grains program, the observed programs combined policy instruments quite suboptimally. We conclude that agricultural economics research now can and should begin placing increased emphasis on studying optimal policy instrument combinations. © 1998 Elsevier Science B.V. All rights reserved.