Optimal advertising levies with application to the Norway-EU Salmon Agreement

This paper focuses on optimal advertising policy for a competitive industry that produces large tradeable surpluses and raises funds for promotion through per-unit levies on production or exports. Results indicate that an export levy biases the advertising budget allocation in favour of the export market, but provides no clear incentive to intensify advertising effort. Applying the model to the Norway-EU Salmon Agreement, results suggest that the current 3 per cent levy may be welfare-increasing from the Norwegian producer perspective. Whether the current budget allocation of 67 per cent to the EU is efficient depends critically on whether advertising elasticities across markets are uniform, a hypothesis that needs to be tested.