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Chapter 11 - Care Planning and the Lived Experience of Dementia
- Edited by Mathieu Vandenbulcke, KU Leuven, Belgium, Rose-Marie Dröes, Erik Schokkaert, KU Leuven, Belgium
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- Dementia and Society
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- 26 May 2022
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- 09 June 2022, pp 211-232
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Summary
There is a (r)evolution in decision-making with dementia. The traditionally applied cognitive approach based on mental capacity is radically questioned by the UN Convention on the Rights of Persons with Disabilities. Although there are still gaps in the alternative they suggest, the UN Convention should be applauded for doing justice to what a person living with dementia really wants. After setting out the puzzle raised by the UN Convention, this contribution aims to explore to what extent two already known ways of dealing with dementia could be part of the quest to uncover what a person who lives with dementia really wants. First, we look at advance care planning. As a process that foreshadows future choices, it has a major potential. Second, we shift to a less self-evident practice; existing dementia care literature that explores holistic hermeneutics and ‘in the moment’ frameworks to better understand the subjective experience of living with dementia. By looking at both a holistic hermeneutic approach and an ‘in the moment’ frame, we question whether these frameworks currently applied for understanding lived experiences of persons living dementia could be applied to disclose a person’s real will and can therewith be a footing for decision-making.
The Water of Life and Death: A Brief Economic History of Spirits
- Lara Cockx, Giulia Meloni, Johan Swinnen
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- Journal of Wine Economics / Volume 16 / Issue 4 / November 2021
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- 18 February 2022, pp. 355-399
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Spirits represent around 50% of global alcohol consumption. This sector is much less studied than other alcoholic beverages such as wine or beer. This paper reviews the economic history of spirits and analyzes recent trends in the spirits markets. The technology to produce spirits is more complex than for wine or beer. Distillation was known in ancient Chinese, Indian, Greek, and Egyptian societies, but it took innovations by the Arabs to distill alcohol. Initially, this alcohol was used for medicinal purposes. Only in the Middle Ages did spirits become a widespread drink. The Industrial Revolution created a large consumer market and reduced the cost of spirits, contributing to excess consumption and alcoholism. Governments have intervened extensively in spirits markets to reduce excessive consumption and to raise taxes. There have been significant changes in spirits consumption and trade over time. Over the past 50 years, the share of spirits in global alcohol consumption increased from around 30% to around 50%. In the past decades, there was strong growth in emerging markets, including in China and India. Recent developments in the spirits industry include premiumization, the growth of craft spirits, and the introduction of terroir for spirits. (JEL Classifications: L51, L66, N40, Q11, Q18)
16 - Algeria, Morocco, and Tunisia
- from Part III - Newer Markets
- Edited by Kym Anderson, University of Adelaide, Vicente Pinilla, Universidad de Zaragoza
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- Wine Globalization
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- 02 February 2018
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- 22 February 2018, pp 441-465
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The Political and Economic History of Vineyard Planting Rights in Europe: From Montesquieu to the European Union*
- Giulia Meloni, Johan Swinnen
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- Journal of Wine Economics / Volume 11 / Issue 3 / December 2016
- Published online by Cambridge University Press:
- 23 November 2016, pp. 379-413
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In 2008, the European Union (EU) voted to liberalize its system of planting rights, which has strictly regulated vine plantings in the EU. However, after an intense lobbying campaign, the liberalization of the planting rights system was overturned in 2013, and new regulations could create an even more restrictive system. European wine associations have complained about the detrimental effects of the new regulations. There is a precedent in history. In 1726, the French political philosopher and landowner Montesquieu complained to the French king about the prohibition on planting new vines. Montesquieu was not successful in his demands to remove the system of planting rights. Old and recent history suggests that political forces against liberalization of planting rights are very strong. Only the French Revolution in 1789 led to a fundamental liberalization of planting rights. The “liberal period” of the nineteenth century was sustained by the combination of the French Revolution's liberal ideology, the thirst of Napoleon's armies for wine, and diseases that wiped out most of the French vineyards.
That said, in the past and the present, enforcement of planting rights is a major problem. In fact, despite the official restrictions, Montesquieu managed to plant his vines, allowing him to become a successful wine producer and merchant, to travel, and to spend time thinking, discussing, and ultimately writing up his ideas that influenced much of the Western world's constitutions. (JEL Classifications: K23, L51, N43, N54, Q18)
11 - Standards, Market Imperfections, and Vertical Coordination in Value Chains
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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- Quality Standards, Value Chains, and International Development
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- 05 August 2015
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- 23 July 2015, pp 162-192
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Summary
Introduction
In Chapter 10 we developed a formal theory of the endogenous process of the introduction of quality and safety standards. We showed that there is an important interaction between standards and production structures. Initial differences in the production structure are shown to influence the emergence of high-standards economic sectors and also which producers are included in the high-standards economy, and which are not. This theory provides an explanation for the remarkable heterogeneity in production structures in high-standards value chains.
The analysis of Chapter 10 assumed for simplicity that producers are not credit constrained and that there are no contract enforcement issues. In real-world settings, however, a crucial factor is the existence of market imperfections, in particular in credit and technology markets. Constrained access to necessary inputs implies major constraints to investments required for quality upgrading, especially for local producers who cannot source from international capital markets. In fact, the introduction of higher quality requirements has coincided with the growth of contracting and technology transfer between buyers and suppliers. Contracts for quality production with local suppliers in developing countries not only specify conditions for delivery and production processes but also include the provision of inputs, credit, technology, and/or management advice (Minten et al., 2009; World Bank, 2005). Empirical evidence shows indeed that vertical coordination, under the form of interlinked contracting, plays an important role in the integration of small producers in high-standards value chains, by improving access to credit, technology and quality inputs in Eastern Europe, Asia, and Africa (Dries et al., 2009; Swinnen, 2006, 2007; World Bank, 2005).
However, the enforcement of contracts for quality production is difficult in developing countries, which are often characterized by poorly functioning enforcement institutions – another crucial factor. These enforcement problems can add significantly to the cost of contracting and may prevent actual contracting from taking place.
In this chapter we formally analyze how vertical coordination can play a role in the presence of factor market imperfections and weak contract enforcement. We analyze how these factors affect surplus creation and rent distribution and how the process of development affects both. Our model starts from the assumption that vertical coordination can emerge as a spontaneous response to, on the one hand, the demand for high-standards products and on the other hand suppliers’ credit constraints.
5 - International Trade and Standards
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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- Quality Standards, Value Chains, and International Development
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16 - Standards and Value Chains with Contracting Costs: Toward a General Model
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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- Quality Standards, Value Chains, and International Development
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- 05 August 2015
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- 23 July 2015, pp 256-268
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Summary
Introduction
As we have emphasized throughout the previous chapters, markets and value chains have undergone dramatic changes in recent decades. Sexton (2012) argues that “modern” markets no longer resemble the traditional textbook example of competitive spot markets, because simple spot markets are unable to cater to today's buyer needs, in particular strict requirements on quality control and supply consistency. This makes the process of supplier search and switching between suppliers particularly expensive – creating incentives for buyers to build up long-term relationships with their suppliers – and leading to an increased incidence of vertical coordination strategies, including production contracts. This is true even for agricultural markets, which are still cited in microeconomics textbooks as standard examples of competitive markets with many buyers and sellers that are small relative to the total size of the market, homogeneous products, perfect information, and perfect contract enforcement. However, as Sexton (2012: 209) points out: “I don't know of any modern agricultural market that meets all these conditions. Most don't meet any of them.”
This “new architecture of modern markets” has important implications for efficiency and equity. Sexton and colleagues emphasize the role of search and switching costs associated with quality and consistency requirements. These types of transaction costs are also increasingly important in emerging and developing economies. In this book so far we have focused on imperfections in rural factor markets and poor contract enforcement institutions, giving rise to additional transaction costs and different vertical coordination strategies. This raises the question whether these different types of transaction costs and the vertical coordination strategies that are implemented in response have the same implications for efficiency and equity, that is, whether the nature of the transaction costs matters. To analyze this question, this chapter develops a “general” model that integrates insights from different strands of the literature.
We develop a generalized theoretical framework accounting for quality requirements, contract-specific investments, factor market imperfections, imperfect contract enforcement institutions, and market power. As we are focusing on those transaction costs that directly derive from the contracting process, we will refer to them as “contracting costs.” We explicitly consider the key characteristics of different types of contracting costs (notably search costs, training costs, monitoring costs, and input costs), and derive the implications of these characteristics for the equity and efficiency effects of vertical coordination.
Frontmatter
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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- Quality Standards, Value Chains, and International Development
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17 - General Equilibrium Effects of Standards in Value Chains
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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- Quality Standards, Value Chains, and International Development
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- 05 August 2015
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- 23 July 2015, pp 269-282
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Summary
Introduction
In the previous chapters we have analyzed how various factors influence the emergence of value chains and the inclusion of different types of producers in value chains (Chapter 10) and the distribution of surplus within these value chains (Chapters 11, 12, and 16). This focus reflects the general assumption in the vast majority of studies that any benefits to smallholders from the rise of high-standards value chains could only come through their role as supplier. However, some recent studies show that, even when poor households are excluded as suppliers because of high standards, they may still benefit importantly through the labor market, that is from employment by larger firms (Maertens and Swinnen, 2009; Maertens et al., 2011). The only studies that try to measure income and poverty effects of large-scale employment find strong poverty reducing effects through labor markets for poor households involved as workers producing high-standards exports in Africa.
More generally, much of the literature (whether theoretical or empirical) has focused on partial effects. What is lacking in the debate around high-standards value chains is a consistent and comprehensive conceptual framework for capturing the multitude of effects and interpreting the partial effects observed in empirical findings. As noted, few studies include labor market effects. In addition, no studies analyze general equilibrium effects such as demand and supply spillover effects on other markets, such as staple foods, which may have very important impacts on farm income in developing countries. Measuring these effects econometrically is very difficult because annual datasets usually do not contain the necessary data on high-standards market and datasets from surveys targeted to measure impacts of the growth of high standards typically do not have sufficient information (either spatially or dynamically) to measure spillover effects on other markets. However, as emphasized by Acemoglu (2010), an understanding of general equilibrium effects is necessary because a failure to do so may lead to wrong estimates and incorrect policy conclusions.
This chapter presents a computable general equilibrium (CGE) model to identify the various mechanisms through which the introduction and growth of high standards can influence welfare and poverty. The model has both low-standards and high-standards value chains, and explicitly integrates key characteristics of many developing and emerging economies, such as capital and labor market constraints. This allows us to analyze how and through which channels the welfare of rural and urban households is affected.
3 - Efficiency and Equity Effects of Standards
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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Summary
Introduction
A crucial aspect of standards is that they have both efficiency and equity effects, and that these effects may be influenced by various factors such as consumer preferences, implementation costs, and so forth. Standards may enhance aggregate welfare, but they may also be set at suboptimal levels, causing welfare losses. Moreover, the introduction of a standard may create winners and losers in society as its effects can differ for consumers and producers, and even within consumer and producer groups.
To illustrate these effects and to show how to derive them formally, we start by developing a closed-economy model to identify efficiency and equity effects of public standards that address problems of asymmetric information. In later chapters, we use this model to analyze the political economy of standards (Chapter 4), and we subsequently extend this model to an open-economy framework (Chapter 5), compare different types of standards (Chapter 6), and move from a setting with public standards only to a situation with both public and private standards (Chapter 7).
In our basic framework, standards generate efficiency gains by solving (or reducing) asymmetric information problems (see Chapter 2), but they also involve implementation costs. We show that under these assumptions, standards involve rent redistribution between consumers and producers. When there is variation in implementation costs, standards may affect producers differently according to the producer's type and the standard's implementation costs.
The chapter is organized as follows. We first introduce the basic closed-economy model. We then analyze the impact of a change in the public standard on aggregate consumer surplus, producer surplus, and welfare, for three different cases. In the first case (Section 3.3), there are no implementation costs related to the standard. The second case (Section 3.4) introduces these implementation costs and the third case (Section 3.5) analyzes the effects when implementation costs are different between different types of producers.
The Model
Consider the market for a “credence good,” that is, a good with certain characteristics that cannot be determined by the consumer, either by search or experience, although consumers value the presence of these characteristics if positive, respectively their absence if negative (Darby and Karni, 1973; Nelson, 1970).
As discussed in Chapter 2, a standard that guarantees certain credence features of the product positively affects consumer utility as it reduces or solves informational asymmetries.
1 - Introduction
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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Summary
The past decades have witnessed an unprecedented restructuring of global markets, which included a rapid increase in trade, foreign investment, and the globalization of value chains. Changing consumer preferences in rich countries, rapid income growth and urbanization in emerging countries, together with technological developments and globalization have transformed the industrial organization and international location of production. One of the most important mechanisms underlying the globalization process lies in the transfer of advanced production capabilities to low-wage economies. These capabilities comprise an increase both in productivity and in product quality (Goldberg and Pavcnik, 2007; Grossman and Helpman, 2005). Leading economists have argued that the quality aspect is by far the more important element: poor productivity can be offset by low wage rates, but until firms attain some threshold level of quality, they cannot achieve sales in global markets and participate in modern value chains, however low the local wage level (Sutton, 2001).
The Rise of Standards
Not surprisingly, these changes have coincided with a global proliferation of “quality standards.” These standards specify requirements on (characteristics of) the production process, the final product, the packaging of the product, and so on. They are increasing in number, in their global reach, and in what they cover, such as safety aspects (e.g., no small toy parts, nuclear equipment safety measures), environmental effects (e.g., organic products, low carbon dioxide emission), health concerns (e.g., low lead or pesticide residues), nutrition requirements (e.g., low fat), and social concerns (e.g., no child labor, fair trade). Standards are set by governments (“public standards”) and by commercial organizations (“private standards”).
An illustration of this trend are the notifications submitted to the World Trade Organization (WTO) whenever member states introduce public standards and regulations that may restrict trade. Notifications to the WTO of sanitary and phyto-sanitary (SPS) and technical barrier to trade (TBT) measures have increased exponentially over the past fifteen years (see also Figure 5.1 in Chapter 5). In 2014, more than 17,000 notifications were submitted to the WTO (WTO, 2014a, b). In the past, most of these notifications originated with the United States and the European Union, but in recent years developing countries have caught up and now issue 60 percent of the SPS notifications.
Contents
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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4 - The Political Economy of Standards and Development
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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Summary
Introduction
As demonstrated in Chapter 3, the introduction of standards typically impacts both efficiency and rent distribution between different groups in society. This, in turn, is likely to induce lobbying by interest groups to influence government decision making on public standards. As we show in this chapter, this may lead to “overstandardization” or “understandardization,” depending on the relative political pressures, much like taxes and subsidies are used in other areas of public policy and public finance.
One can thus expect to observe variations in public standards setting across countries. However, the observed variations in standards do not seem to be random. There appears to be a positive correlation between public standards and the level of economic development. An important question is what causes this correlation. The most straightforward explanation is that rich consumers (countries) prefer higher standards (e.g., Wilson and Abiola, 2003). Although this is undoubtedly an important element, in this chapter we show that the impact of development on the government's choice of standards is more complex and depends on several factors – including, besides consumer preferences, compliance costs, enforcement problems, and institutions of information provision that may influence (consumer) perceptions.
The political economy approach in this chapter, as well as in subsequent ones, is based on the seminal “protection for sale” framework of Grossman and Helpman (1994) but applied to standard setting. We develop a political economy model of public standards in which both producers and consumers are actively and simultaneously lobbying. In this chapter, we apply our model to a closed economy to analyze the essential features of the political economy equilibrium. In Chapter 5, we extend the model to study the political economy of standards in an open economy, and to derive the conditions under which standards can be categorized as protectionist instruments.
We start by developing a model of the economy (Section 4.2) where standards benefit consumers because standards guarantee that the product satisfies certain characteristics preferred by the consumer. Production costs are increasing in the level of the public standard. As in Chapter 3, producers or consumers may gain or lose from a change in the standard. With these potential welfare effects, we derive the political incentives and the political equilibrium (Section 4.3). We then analyze how the equilibrium is affected by several political and economic characteristics (Section 4.4). We show that either over- or understandardization may result (Section 4.5).
Quality Standards, Value Chains, and International Development
- Economic and Political Theory
- Johan Swinnen, Koen Deconinck, Thijs Vandemoortele, Anneleen Vandeplas
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Over the past decades, the world has witnessed an unprecedented growth in global value chains, propelled by increasingly demanding quality standards. These trends lead to concerns about the impact of value chains on development and poverty and about the possible protectionist nature of quality standards in rich countries. This book offers the first integrated theoretical analysis of the economic and political factors which determine the level of quality standards, as well as their economic effects along the value chain. Using realistic assumptions motivated by empirical research, the theoretical framework in this book makes it possible to study the efficiency effects as well as the distributional consequences of one of the most striking evolutions affecting global trade and development today.
9 - The Political Economy of Standards and Inclusion in Value Chains
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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Summary
Introduction
As demonstrated in Chapter 3, standards may have heterogeneous effects on different groups of producers. Chapter 7 analyzed this for the “vertical” case where different actors along the value chain had potentially opposing interests. In this chapter, we extend the analysis of heterogeneous effects of standards to the “horizontal” case where standards allow only a subset of all companies or households to be included at a certain stage in the value chain. Examples of such standards include occupational licenses (Kleiner, 2000), the practices of the medieval guild systems (Ogilvie, 2014), or geographical indications (GI), collective labels backed by government regulation to certify the geographical origins of a product (Moschini et al., 2008). GI regulations delineate the area for which the label applies, thus including or excluding producers on the basis of their location. In all these cases, the standard explicitly determines which producers are included in the value chain.
The selection of a subset of producers in a value chain can also occur as the result of private standards, as we discuss in Chapter 10. However, the case analyzed here concerns the selection of a subset of producers by the government. In some cases, the implementation of the public standard may depend on nongovernmental bodies. Occupational licensing, for instance, often happens through a nongovernmental licensing board, but members of this board are typically political appointees, and the exclusion of non-licensed producers is only effective because it is sanctioned by government (Kleiner, 2000).
Such exclusionary public standards are often justified by reference to an indirect positive effect on quality. To the extent that such a positive quality effect exists, the standard may thus have efficiency effects. However, obviously, the explicit inclusion or exclusion of producers causes distributional issues, which will in turn influence the political process of deciding on the size of the population of “insiders.” A crucial question is therefore how large the population of insiders should be, and how the political process determines the actual population.
This chapter develops a political economy model to analyze such issues. Our analysis makes four assumptions. First, the decision over the size of the population of insiders is taken by government bodies that may be influenced by various interest groups. Second, the group of insiders organizes some common activities that lead to both variable and fixed costs. Examples would be common marketing or training activities.
15 - Economic Liberalization, Value Chains, and Development
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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8 - Butterflies and Political Economy Dynamics in Standard Setting
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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Summary
Introduction
The models used in the previous chapters in this book were all static in nature. However, in many cases regulation and standards are introduced when preferences change (e.g., evolving social norms), environmental conditions change (e.g., climate change), or when new technologies become available (e.g., nuclear energy, genetic modification). These changes induce new policy questions to either allow new technologies or not or to try to change behavior in response of environmental and social concerns, or not. Some of these questions may be satisfactorily addressed by static models: comparing the impact of two sets of preferences may relate to differences between countries or differences at different points in time. However, the dynamics of the changes may imply issues that cannot be (easily) captured by a static model. What if some of these changes are temporary: Will they result in changes in standards? And, if so, will these standards be temporary as well, or will they last?
As an illustration, it is often argued that a series of food safety crises at the end of the 1990s in Western Europe had a major impact on food standards and value chain regulations – as, for example, reflected in the 2002 General Food Law of the European Union. The crises triggered widespread media coverage, strong consumer reactions, and rapid responses from politicians and regulators. It is claimed that the impact of these public reactions, part of which were temporary, had a major influence on a series of standards that affect European food systems and value chains today, including the regulation of genetically modified (GM) food (McCluskey and Swinnen, 2011; Swinnen et al., 2010). Another, but related, example is the use of the “precautionary principle” in policymaking. As David Vogel (2003) explains, this principle guided much of U.S. regulatory policy in the 1960s and 1970s, itself induced by widely publicized regulatory failures such as the 1962 thalidomide scandal, while the principle was not used in Europe. However, after the food safety crises of the 1990s in Europe and political changes in the United States, the situation is reversed. The precautionary principle is now guiding EU policymaking much more than that of the United States.
References
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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6 - Risk, Externalities, and the Nature of Standards
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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Summary
Introduction
In Chapters 4 and 5 we derived the politically optimal level of standards and showed that the politically optimal choice of standards is affected by various factors including efficiency gains for consumers, implementation costs for producers, as well as levels of development, the media, a standard's effect on comparative advantage, and the ability of institutions to enforce standards.
An important question is whether these results are sensitive to the nature of standards. As discussed in Chapter 2, there is a variety of standards and, by consequence, a variety of ways of modeling standards. Studies in the literature have typically used a general concept of “standards” (as in our own analysis in Chapters 4 and 5) or analyzed a specific case (such as genetic modification [GM] regulations). Yet the issue whether the results depend on the nature of standards may be an important question, in particular if one considers the increasing importance of standards in trade conflicts. Some of the main conflicts in international trade policies relate to safety regulations, such as the bovine growth hormone case, the GM food case, and the (in)famous aflatoxin case. However, other types of standards, such as social and ethical standards, also affect trade. The growing influence of quality, environmental, and social standards on trade has caused Pascal Lamy, when he was Director-General of the World Trade Organization, to publicly warn that this proliferation of “green” and other standards could complicate trade negotiations (Minder, 2007). For all these reasons it is important to examine whether the nature of standards affects the political choice of the standard and how it may distort trade.
The objective of this chapter is therefore to analyze how the nature of standards affects the political economy of standards. The model in this chapter builds on the analytical framework developed in Chapters 4 and 5, but is extended to model explicitly the effects of different types of standards. An important contribution of this chapter is that it explicitly integrates risk and externalities in a political economy setting.
The chapter is organized as follows. The next section extends the model of Chapters 4 and 5 to analyze the impact of different standards on consumers – taking risk considerations into account – and producers.
12 - Market Power and Vertical Coordination in Value Chains
- Johan Swinnen, Katholieke Universiteit Leuven, Belgium, Koen Deconinck, Katholieke Universiteit Leuven, Belgium, Thijs Vandemoortele, Katholieke Universiteit Leuven, Belgium, Anneleen Vandeplas, Katholieke Universiteit Leuven, Belgium
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Summary
Introduction
Market power and competition in value chains are important items on the policy agenda around the world. In many value chains there are stages where a few firms dominate the market. The exercise of market power may lead to higher consumer prices and lower supplier prices, and therefore economic distortions and reduced consumer and/or supplier welfare. Claims that large, often multinational companies such as global retailers and food companies are driving up consumer prices and/or depressing local supplier prices have been made in many countries. For example, in 2006, demonstrators outside the Walmart shareholders’ meeting in Mexico City protested against “the low wages Wal-Mart pays its employees, the low prices it pays to its suppliers” (Globalexchange.org, November 14, 2006). Also Monsanto, the world's largest seed company, has been frequently accused in the press of “using monopoly powers to drive up [seed] prices and stymie competition” (e.g., Reuters, January 8, 2010).
However, the effects of market concentration on the exercise of market power and the associated welfare effects are less straightforward than often claimed. For instance, increased concentration could lead to economies of scale, resulting in efficiency gains for society. Moreover, increased concentration among retailers may lead to “countervailing power” in their bargaining with large processing companies; these lower prices could in turn be passed on to consumers. Mirroring these ambiguous theoretical predictions, the empirical literature shows little consensus on the welfare effects associated with market concentration.
The issue of market concentration is also important in relation to standards. Large multinational companies with dominant market positions have introduced their own private standards which, because of their size, have become de facto mandatory for many suppliers (Henson, 2006; Smith, 2009). Moreover, suppliers have often been confronted with a limited number of buyers willing (or able) to reward high standards, for example, because standards (and the associated quality premiums) are company-specific. Finally, high-standards product perishability may reduce supply elasticity and therefore reduce supplier bargaining power (Sexton and Zhang, 1996).
In this chapter we analyze the impact of market concentration and, conversely, competition in value chains when there are factor market imperfections and vertical coordination. We first briefly review some of the literature on the effects of increased concentration on both consumers and suppliers. Because there is a huge literature on this topic, we focus on concentration in retailing, an issue that has attracted much attention recently.