The optimal choice and timing of agricultural policies in the presence of uncertainty

Agricultural policy analysis has traditionally focused on the optimal choice of policy instruments for a given set of policy objectives. Less attention has been paid to the fact that the timing of policy implementation is another choice variable to policy makers. This choice is reflected in the current debate on how Norway should adjust its agricultural policy with respect to the ongoing WTO negotiations. Broadly speaking, two options for the government have been proposed: (1) to implement immdediately ch anges to agricultural policy that will keep that policy within the limits of any future WTO-agreement, or (2) to continue the present policy until a currently uncertain future WTO-agreement becomes binding. We address this research challenge by proposing the development of a general framework that explores the choice of policy instruments and the timing of policy implementation simultaneously. The framework will be applied to the issue of adjusting Norwegian agricultural policies in the context of the WTO . The proposed framework will combine the framework for policy analysis developed by Bullock, Salhofer and Kola (BSK) and the option value approach developed by Dixit and Pindyck. The BSK-framework allows the evaluation of any set of policy instruments (e .g. tariffs, admininstrative prices, direct payments or production quotas) against any set of agricultural policy objectives including agricultural income and public goods produced by agriculture. The option value approach focuses on the cost of giving up the option to wait implementing a (irreversible) policy reform in the presence of uncertainty. The contribution of this proposal to society will be improved knowledge about the crucial question at what point in time to implement what kind of policy refor m. Results will be made public by (1) publishing journal articles and (2) arranging seminars open to policy makers, government officials, farm representatives and others interested in agricultural policies.