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Processing Industry Capacity and the Welfare Effects of Sugar Policies
Author(s) -
Williams Jeffrey C.,
Isham Brooke A.
Publication year - 1999
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1244592
Subject(s) - sugar , comparative statics , certainty , welfare , refining (metallurgy) , capital (architecture) , economics , sugar industry , microeconomics , mathematics , chemistry , market economy , food science , geometry , archaeology , history
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.