Linking Comparative Advantage, Supply Management and Environmental Externalities: Lessons from an Integrative Economic Approach

Rajsic, Predrag
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University of Guelph

Applying the concept of comparative advantage in the allocation of production has been required but ignored in Canadian supply-managed agriculture. There seems to be a lack of consensus among economists on how comparative advantage is to be observed and applied in this context. It is also not clear whether the recent changes in the environmental pressures from agriculture across Canada might have contributed to changes in the patterns of comparative advantage in primary dairy production. Linking the concept of individual comparative advantage with the concept of the market as an information discovery process through comprehensive microeconomic general equilibrium modeling, deductive reasoning, and statistical analysis of recent industry data has shown (1) that changes in individual comparative advantage in supply-managed industries are expressed through quota exchange and revealed through quota prices, and (2) that environmental externalities may change the patterns of comparative advantage. The current provincial quota prices, as the appropriate indicators of comparative advantage, suggest that more quota should be allocated to British Columbia and Alberta.

comparative advantage, externalities, supply management, heckscher-ohlin, environmental, ricardo, austrian economics