The Tobacco Program: An Econometric Analysis of Its Benefits to Farmers

A model of the demand for American flue-cured tobacco is developed in order to examine the relationship between the regulation of the American tobacco program and welfare of the US tobacco farmer. Estimating domestic demand and foreign demand and then summing the 2 products produces the estimated aggregate demand for American flue-cured tobacco. The intersection of this aggregate demand curve with several hypothetical supply curves with varying elasticities determines a range of competitive equilibria. Comparing the revenue from these competitive equilibria with the actual revenue under government regulation demonstrates whether the tobacco program has raised the revenue of the tobacco growers. From these equilibria and the examination of tobacco quota, it is determined that the program does not benefit farmers.