MARKET ALLOCATION RULES FOR NONPRICE PROMOTION WITH FARM PROGRAMS - US COTTON

Rules are derived to indicate the optimal allocation of a fixed promot ion budget between domestic and export markets when the commodity in q uestion represents a significant portion of world trade and is protect ed in the domestic market by a deficiency-payment program. Optimal all ocation decisions are governed by advertising elasticities in the dome stic and export markets and the export market share. Promotion's abili ty to lower deficiency payments is inversely related to the absolute v alue of demand elasticities in the domestic and export markets and dir ectly related to advertising elasticities and certain policy parameter s. The empirical application suggests subsidies for nonprice export pr omotion may be efficiency increasing in a second-best sense. That is, the heightened subsidies associated with the Targeted Export Assistanc e program and the Market Promotion Program appear to have corrected al locative errors that favored domestic market promotion.