Measuring Welfare Effects of an FMD Outbreak in the United States

Questions have been raised regarding the economic costs of food-and-mouth disease (FMD) outbreak in the United States. This analysis examines how welfare changes are measured and argues that they must be decomposed by groups. Producers with animals quarantined and slaughtered because of FMD measure their welfare change using lost sales. Producers not quarantined measure their welfare change using producer surplus. The change in national sales revenue is accurate when the supply elasticity is low. Welfare changes for consumers also must be decomposed because the change in aggregate consumer surplus hides important shifts in welfare among groups of consumers.