Measuring Political Information Rents: Evidence from the European Agricultural Reform

This paper develops a method to estimate information rents of losers of a reform who receive a monetary compensation. Our method explicitly accounts for survey respondents' reluctance to reveal a willingness to accept which is smaller than the actual compensation. We apply our approach to the case of the 2005 European agricultural reform using uniquely gathered survey data from farmers in Lower Saxony, Germany. We find empirical indications for strategic misreporting. Correcting for these effects with a structural model, we find that information rents are in the order of up to 15 per cent of total compensation paid. Moreover, we show that the reform could not have been implemented distinctly cheaper by conditioning compensation schemes on observable factors.