The reason for this being that the implementation of a subsidy would allow firms to operate at a lower cost thus gain higher profit as it produces beyond the optimal output level. On the other hand, Consumers are also better off as a subsidy allows firms to lower prices but at the cost of the government incurring this widening wedge between marginal social and private cost using tax revenues. This gradually allows the government to change signals that price conveys in improving allocative inefficiency within the meat industry through the use of excess profits for increased investments by these firms in research, greater provision of information and capital equipment. For instance, the EU Single Farm Payment Scheme is an exemplary model as it provides direct assistance towards farmers through cross compliance conditions on public, animal and plant health and animal welfare. However, the tax required to finance this subsidy could create more severe market distortion depending the degree of tax incidence and the elasticity of meat products. This would result in adverse consequences on budgets as firms and consumers do not face the true social cost of meat production while governments take the burden on behalf of society to ensure higher welfare for each euro invested. On the contrary, the goals of firms are …show more content…
The reason being that legislation enables a direct impact at the desired level of animal welfare which is more easily adjustable for dynamic optimality condition. A performance based legislation in theory involves setting performance goals while providing individuals and firms the flexibility to choose how to meet them (Coglianese, 2012). This would prove beneficial as meat producers strive for cost minimisation in order to achieve the optimal level of performance while simultaneously fostering innovation within the meat industry using the excess profits. As a result, the benefits on meat production would gradually outweigh cost of innovations via implementation of regulation such as the UK Animal Welfare Act 2006(House of Commons, 2006). Nevertheless, policymakers do still have to acknowledge the effect of economic inertia within the political and consumer sphere as meat producers would resist legislators and intermediaries to improve negative animal welfare due to the rigidity of existing price structures. Hence, current legislation efforts might incur an increased cost in the short term which, if incurred by meat producers, would instigate a loss due to low price expectations among consumers. Therefore, this could potentially clash with the meat firms aim to maintain profit and revenue, thus providing incentive to