The Social Cost of the Tobacco Program

With the use of the traditional welfare tools of consumers' and producers' surplus, a complete accounting of welfare gains and losses for flue-cured tobacco has been made. An aspect of the flue-cured tobacco market has been the strong monopoly position of the U. S. in world trade. The price increasing feature of the tobacco program has provided the U. S. with a monopoly rent from foreign sales—part of which offsets the traditional welfare losses associated with price support programs. Some evidence on the cost of restricting one input is presented. Though the social cost of the program has been small, the longer run implications are that transferring income to tobacco producers will become more costly in terms of lost producer and consumer surplus.