The (Normative) Efficiency Ranking of Output and Export Subsidies under Costly and Imperfect Enforcement
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This paper relaxes the assumption of perfect and costless policy enforcement implicit in traditional
analysis of output and export subsidies and introduces enforcement costs and cheating into the economic
analysis of these policy instruments. Analytical results show that compliance with policy rules is not the
natural outcome of self-interest and complete deterrence of cheating is not economically efficient. The
introduction of enforcement costs and cheating changes the welfare effects of the policy mechanisms,
their efficiency in redistributing income to producers, and their normative ranking in terms of transfer
efficiency.