| Despite the increasing importance of market power in the food industry, most policy models assume perfect competition. Ignoring market power may lead economists to make incorrect, or at least misleading, policy recommendations. In this paper I develop a theoretical model in which market power can alter conclusions regarding the welfare effects of a specific policy change: replacing deficiency payments with decoupled payments to farmers, and apply it to the U.S. wheat market and milling industry. The main conclusions of the theoretical model are that, middlemens market power may cause i) an increase in public expenditure, ii) an extraction of policy rents from the taxpayers by the middlemen, and iii) a reduction of the social benefit from decoupling... |
