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Asian Journal of Agriculture and Development, Vol. 7, No.

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International Best Practice in Food Policy:

Reflections on Food Policy Analysis1

C. Peter Timmer
Center for Global Development, USA

It has been more than 25 years since Food a world running out of food would have been
Policy Analysis (Timmer et al. 1983) was out of date before the ink was dry, and so a full-
published, and more than 30 years since the scale revamping of the analytical messages was
initial outline for the book was circulated among needed. The new theme, which has stood the
the authors. It is fair to say that the volume has test of a quarter century of market fluctuations,
been very influential in the way food policy was the need for flexibility to cope with market
issues have been looked at, and it remains in instability.
use as a textbook for a number of university Such flexibility is not a natural feature of
courses2. Its academic success is a bit surprising domestic policymaking in the food sector or
because the target audience was not primarily elsewhere, and providing the analytical tools for
university faculty (for whom the book seemed understanding how to create flexible responses
too simplistic in methodology and too anecdotal both to high- and low-price environments turned
in presentation). Instead, it was mainly aimed at out to be a real challenge. But the approach
practitioners, an ill-defined group of analysts in remains relevant to this day, hence, the continued
need of an understanding of how a complicated usefulness of an analytical guidebook that is a
and interconnected food system actually works. quarter century old.
Training these practitioners was the main
mission of the book. THE BASIC MESSAGE
The early drafts of Food Policy Analysis
(henceforth FPA) were stimulated by the The primary goal of FPA was ambitious:
attention to high food prices following the world rapid and sustained poverty reduction. At its
food crisis in 1973-74, and the fears of a repeat drafting stage, there was not even an agreement
in 1979-80. But by the fourth full draft, in 1982, in the development profession that such a goal
it became apparent that surpluses were returning was feasible. Paul Streeten, who published First
to world food markets. A volume predicated on Things First: Meeting Basic Human Needs in

An early draft of this paper was presented at the Sixth International Conference of the Asian Society of Agricultural
Economists on the theme, The Asian Economic Renaissance: Whats in It for Agriculture, held in Manila, Philippines,
28-30 August 2008.

Although long out of print, the volume remains available online at the following Stanford University website: http://www.
84 C. Peter Timmer

1982, eloquently argued that rapid growth was not message was that such understanding, in most
possible and that development strategy needed to circumstances, could not come from complicated
focus on providing basic needs to the poor. FPAs models that tried to capture econometrically all
focus on more rapid economic growth and the the behavioral and market relationships. Instead,
policies to enhance efficiency in order to bring the understanding needed to come from a simpler
it about was controversial for a volume that took vision of how the food system operated. This
poverty seriously. vision was partly created by the framework of
But FPA argued that growth was not enough. and analytical discussion in FPA itself and, more
It espoused four basic food policy objectives, all importantly, from the data and simple analysis
of which were important: that practitioners were urged to generate.
With 25 years of hindsight, it is easy to
1. Faster economic growth (the efficiency see several themes that received little attention
objective) in FPA but which would require extensive
2. More equal distribution of income from that treatment today. Gender played a minor role
growth (the welfare objective) in the analysis, reflecting the dominance of
3. A guaranteed nutritional floor for the poor (the the unitary household model of farm and
safety net objective) household decision-making at the time (a model
4. Secure availability and stable prices in food that still has considerable relevance, by the way).
markets (the food security objective) Further treatment of intra-household decision-
making, especially with respect to nutrient
Clearly, there can be trade-offs (and overlaps) intake and schooling decisions, is now possible.
among these objectives, and substantial analysis A behavioral perspective would add power to
of a countrys food system was necessary to efforts to understand formation of expectations,
understand, even just roughly, the magnitudes attitudes toward risk, as well as participation
of the trade-offs. The central organizing theme of farmers and households in financial markets.
of the analysis was the food price dilemma, an Neither environment nor sustainable appears
explicit recognition that a single market-clearing in the index, much less the problems looming
food price could not simultaneously satisfy all from climate change. All would need to be
four objectives. Additional policy instruments incorporated into the analysis now.
were needed, and all must operate compatibly The analysis virtually was focused on
with market prices. If readers came away with national policies and domestic markets. The
only one lesson from reading FPA, it was the international linkages to these markets were
centrality of food pricesand the signals they stressed and analyzed, but nearly all food policy
sent to farmers, traders, consumers, and finance interventions are designed and implemented by
ministers. domestic actors. There are no international food
The behavior of these decision-making agents policymakers, unless you count individuals such
dictated market outcomes, but also responded to as Bill Gates and Bob Zoellick, who have money
those market outcomes. The macro food system and speeches to give, but not policy levers to pull.
that food policy analysts needed to understand The food crisis of 2008 has seen a renewal of
encompassed micro behavior on the farm and in this domestic policy focus, despite the arguably
the household; market-level behavior by traders, larger role now played by global integration of
processors, and retailers; and macroeconomic factor and commodity markets.
responses by policymakers. FPAs essential
Asian Journal of Agriculture and Development, Vol. 7, No. 1 85

THE CHANGING GLOBAL ENVIRONMENT the economy started to decline caused a crisis
in local financial markets. Global financial
The international context for domestic food integration came with very poorly understood
policy decision-making has certainly changed risks.
substantially since FPA was drafted in the early 4. The rapid emergence in the 1990s of China
1980s. Five basic trends stand out: and India as global growth engines meant
a gradual shift in the drivers of demand for
1. The last quarter century has seen surprisingly commodities and natural resources. Advanced
rapid economic growth, especially in Asia, economies have become more knowledge-
with hundreds of millions of people pulled driven and less dependent on energy, metals,
out of poverty. The strong connection between and other basic commoditiesincluding
inclusive economic growth, especially in rural food commoditiesto fuel their economic
areas, and rapid reduction of poverty was growth. The price depression for nearly all
simply not apparent in the empirical record commodities in the 1980s reinforced the view
in the early 1980s. The East Asian Miracle that the future depended on value added from
(World Bank 1993) did not appear for another skills and knowledge, not from exploitation
decade. This rapid growth validated the central of natural resources. But industrialization,
theme of FPA, which was the unsustainability especially as practiced by China and India, is
of poverty reduction efforts without higher a very intensive user of natural resources. By
economic productivity of unskilled, especially the turn of the millennium, it was increasingly
rural, labor. clear that the growth path of developing
2. A communications revolution at both the countries was the primary driver of commodity
household and international levels has radically prices, starting with energy prices but quickly
reduced transactions costs and increased access extending to food prices.
to knowledge. Again, the centrality in FPA of 5. High energy prices have turned out to be a
markets and price formation to understanding game changer for agriculture and the food
food policy design and implementation received economy. When oil prices became high enough
a boost as marketing margins narrowed under to justify using sugar, maize, or vegetable
improved and more informed competition. oils to produce gasoline or diesel substitutes,
Consumers and farmers both benefited from agricultural commodity prices became directly
more competitive local food markets. linked to oil prices. The concern to reduce
3. Global financial markets became interested in emissions of greenhouse gases provided ample
emerging economies. Remember, the early motivation for the US and European legislatures
1980s was an era of fixed exchange rates, tight to mandate the use of domestic food crops
controls on the flow of foreign capital, and to produce liquid fuels. The combination of
virtually no financial intermediation beyond legislative mandates, which provide essential
state banks. At first, the influx of foreign risk coverage to investors in biofuel facilities,
capital was welcomed as a sign of confidence, and high oil prices, which provide market-
but except for foreign direct investment in based incentives, led to a new set of linkages
real assets such as factories and real estate, between agriculture and the energy sector.
the global financial interest in emerging There has long been a link on the supply side,
economies was a two-edged sword. A rapid as energy prices affected the costs of fertilizer
influx could cause currency appreciation and and fuel for tractors and trucks as well as
a loss of competitiveness; its rapid exit when the economics of global supply chains. The
86 C. Peter Timmer

new link is through the demand side. Higher decline seemed sustainable, at least in
prices for energy translate directly into greater narrow economic terms. The low prices also
demand for food commodities to convert into speeded up the structural transformation,
liquid fuels. with a rapid exit of small farmers from the
agricultural sector. This too was sustainable
WHAT SHOULD FOOD POLICY in countries with rapidly growing and labor-
ANALYSTS DO NOW? intensive export industries, as the labor was
absorbed while real wages rose. Of course,
Despite these changes in the international countries without dynamic macro economies
context, three basic analytical messages from had the benefit of low food prices, but real
FPA remain intact: the need for incentive food wages stagnated and poverty rose.
prices to stimulate food production and the rural The problem was that low food prices in
economy, the use of border prices to measure world markets also sent investment signals
long-run opportunity costs of production and to governments, donors, and research
consumption, and the integration of macro and institutions, encouraging them to walk away
trade policy into the food policy debate. from the agricultural sector as a crucial source
of productivity growth, food security, and
1. The need for price incentives to stimulate poverty reduction. Reduced investments in
production is one of the main themes in FPA, agriculture and rural infrastructure throughout
and its importance is reflected by the fact the 1980s and 1990s resulted in falling rates of
that the chapter on food consumption and productivity growth. Eventually, as students
nutrition comes before the production chapter. of cobweb cycles understand, growth in
Why? This material laid out the analytical food production fell behind growth in food
underpinnings for the targeted consumer consumption, scarcity re-emerged, and market
subsidies that would be needed to cope with prices spiraled higher. The world food crisis
higher food prices. Because of the overriding in the late 2007 and early 2008 had its roots
concern for poverty reduction in FPA, it directly in this earlier neglect of agricultural
argues that policy analysts must design these investments. Markets were sending the wrong
subsidy programs and be ready to implement signals to public decision-makers, while
them before the move to higher prices for private decision-makers had no recourse
farmers was initiated. At the time, the higher except to heed them.
prices were seen as a policy choice, one that The urgent need to find efficient and
overcame the historical discrimination against effective mechanisms to implement food
agriculture seen in most countries rural- subsidies for the poor, the main point of the
urban terms of trade, as compared with border chapter on food consumption and nutrition
prices. in FPA, has become relevant 25 years later.
The long-run decline in world food prices There are more sophisticated approaches now,
from the early 1980s to the mid-2000s using conditional cash transfers, improved
gradually called this strategy into question. On information technology for screening, and
one hand, the decline was welcome because it the realization that broader social safety nets
raised the real purchasing power of the poor. might be just as effective as narrower food
Since much of the decline was stimulated by subsidies. But the food price dilemma has not
the Green Revolution and sharply reduced gone away.
costs of production for rice and wheat, the
Asian Journal of Agriculture and Development, Vol. 7, No. 1 87

2. Border prices for tradable commodities are likely to be true). The argument is the need
the standard measure of opportunity costs for an informed dialogue between food policy
for long-run decisions on production and analysts and macro policy analysts, with each
consumption. Although this was beginning understanding the stakes on the other side of
to be accepted in principle in the early 1980s, the table.
the prevalence of fixed exchange rates and Experience over the past quarter century has
relatively opaque government-to-government shown the real benefits of this policy dialogue.
trade deals for important food commodities First, the need for rapid growth in agricultural
meant that much of the analysis was devoted productivity, with substantial participation by
to figuring out exactly what the long-run small farmers where they are a significant part
border price actually was. of the production structure, is increasingly
There were two problems: knowing what recognized by macro policymakers as a key
exchange rate to apply and knowing whether element in the overall development strategy.
or not short-run price quotations in world Finance ministers with their hands on fiscal
markets reflected longer-run opportunity policy and public investment allocations,
costs. Much of the project appraisal literature central bankers with their hands on exchange
from the late 1970s and early 1980s was rates and money supplies, and heads of
devoted to determining the shadow exchange planning agencies with their hands on strategic
rate to be used to calculate effective border approaches and sectoral resource allocations
prices. Much of Getting Prices Right (Timmer understand now their own stakes in a healthy
1986), a price policy follow-on to FPA, was rural economy.
devoted to understanding the relevant long-run In return, food and agricultural planners
price trends to use for making public sector have increasingly understood that real wages
investments and for managing domestic price in rural areas depend fundamentally on real
policy interventions. wages in the urban economy. Real food prices
The first problem has largely been solved, for farmers and consumers are conditioned
as most countries have adopted reasonably by the rate of inflation and by exchange rates.
flexible exchange rates that permit the market Investments in rural infrastructure require
to indicate the opportunity cost of foreign budget allocations. Trade policy has direct
exchange. The same cannot be said for and indirect effects on rural incentives. The
finding the appropriate long-run price signal need for a macro food policy has never been
in the short-run fluctuations still seen in world clearer.
commodity markets. The concern for doing so,
clearly articulated in FPA, remains a challenge WHAT INTERNATIONAL REGIME
to todays food policy analysts. WILL BE IN PLAY?

3. Perhaps the most revolutionary argument in The components of this macro food policy
FPA is its insistence that food policy analysis will be conditioned, as never before, by the
needs to incorporate macroeconomic and international context in which it is formulated. It is
trade policy. The argument is not that the both exciting, and troubling, that this international
policy environment needed for a healthy contextthe global food price regimeis in
food system should dictate overall macro a greater state of flux, with more uncertainties,
and trade policy (although there are certainly than at any time since FPA was drafted. Which
some poor agrarian countries where that is regime will drive policy formation in the coming
88 C. Peter Timmer

quarter century? Will it be the historical path between labor productivity in the agricultural
of structural transformation with falling food and non-agricultural sector. This widening puts
prices, leading to a world without agriculture enormous pressure on rural societies to adjust and
(Timmer 2008)? Or will it be a new and uncertain modernize. These pressures are then translated
path of rising real costs for food with a reversal into visible and significant policy responses
of structural transformation (Timmer and Akkus that alter agricultural prices. The agricultural
2008)? Management of food policy, and the surpluses generated in rich countries because
outlook for sustained poverty reduction, will be of artificially high prices then cause artificially
radically different depending on which of these low prices in world markets and a consequent
global price regimes plays out. undervaluation of agriculture in poor countries.
This undervaluation over the past several decades
The historical pathway of structural is a significant factor explaining the world food
transformation with falling food prices crisis in 2007-08.
Third, despite the decline in the relative
Structural transformation involves four main importance of the agricultural sector, leading to
features: a world without agriculture in rich societies,
the process of economic growth and structural
1. a falling share of agriculture in economic transformation requires major investments in the
output and employment agricultural sector itself. This seeming paradox
2. a rising share of urban economic activity in has complicated (and obfuscated) planning in
industry and modern services developing countries as well as donor agencies
3. migration of rural workers to urban settings seeking to speed economic growth and connect
4. a demographic transition in birth and death the poor to it.
rates that always leads to a spurt in population The historical process of structural
growth before a new equilibrium is reached transformation might seem like a distant hope for
the worlds poor, who are mostly caught up in
These four dimensions of the historical eking out a living day by day. On the other hand,
pathway of structural transformation are governments can do many things to give them
experienced by all successful developing more immediate hope, such as keeping staple
economies; diversity appears in the various foods cheap and accessible, helping connect
approaches governments have tried to cope rural laborers to urban jobs, and augmenting
with the political pressures generated along that educational and health services in rural areas.
pathway. Finding efficient policy mechanisms But for poverty-reducing initiatives to be feasible
that will keep the poor from falling off the over long periods of timeto be sustainable as
pathway altogether has occupied the development current development jargon would have itthe
profession for decades. Three key lessons can be indispensable necessity is a growing economy
gleaned: that successfully integrates the rural with urban
First, structural transformation has been the sectors, and stimulates higher productivity in
main pathway out of poverty for all societies, both. That is, the long-run success of poverty
and it depends on rising productivity in both the reduction hinges directly on a successful
agricultural and non-agricultural sectors (and the structural transformation. The historical record
two are connected). is very clear on this path.
Second, in the early stages, the process Coping with the distributional consequences
of structural transformation widens the gap of rapid transformation has turned out to be a
Asian Journal of Agriculture and Development, Vol. 7, No. 1 89

major challenge for policymakers over the past Biofuels, rising food prices, and the potential
half century and the historical record illuminates to reverse the structural transformation
what works and what does not. Trying to stop the
structural transformation simply does not work: It is too soon to say whether or not the reversal
it certainly does not work for the poor. Investing of long-run downward trends in real prices of
in the capacity of the poor to benefit from change, agricultural commoditiesa reversal driven by
however, does seem to work. Investments in demand for biofuels and possibly by the impact
human resourcesespecially investments in of climate change on agricultural productivity
education and healthare the most promising will also reverse the steady movement of the
pathways here. Such investment strategies can turning point in the structural transformation to
only be successful if the rest of the economy is higher income levels. If so, the short-run impact
doing well, and they typically require significant on the poor is almost certain to be negative; but
public sector resources and policy support to the higher real returns promised to commodity
enhance rural productivity. These rural investment producers, without agricultural protection, could
strategies depend on political processes that stimulate the broad array of rural investments
are themselves conditioned by the pressures needed to generate productivity increases in
generated by the structural transformation. rural areas, raise real wages, and be the long-run
A world without agriculture would pathway out of rural poverty.
actually make life much easier for development Biofuels are not new. Although coal was
agencies and for politicians in rich countries. known in China in pre-historic times and was
Getting agriculture moving in poor countries traded in England as early as the 13th century,
is a complicated, long-run process that requires it was not used widely for industrial purposes
close, but changing, relationships between the until the 17th century. Until then, biofuels were
public and private sectors. Donor agencies are virtually the only source of energy for human
not good at this. More problematic, the process economic activities, and for many poor people
of agricultural development requires good they remain so today. But the widespread use
economic governance in the countries themselves of fossil fuels since the Industrial Revolution
if it is to work rapidly and efficiently. Aid donors has provided a huge subsidy to these economic
cannot hope to contribute good governance activities (because coal and later petroleum were
themselvesand may well impede it. so cheap), a subsidy that seems to be nearing an
The strong historical tendency toward end.
a widening of income differences between What will be the role of biofuels going
rural and urban economies during the initial forward, and what will be the impact on
stages of the structural transformation is now agriculture? In the extreme, the demand
extending much further into the development for biofuels in rich countries to power their
process. Consequently, with little prospect of automobiles has the potential to raise the price
reaching quickly the turning point, where farm of basic agricultural commodities to such a level
and non-farm productivity and incomes begin that the entire structural transformation could be
to converge, many poor countries are turning to reversed. If so, the growing use of biofuels has two
agricultural protection and farm subsidies sooner alternative futures: it could spell impoverishment
rather than later in their development process. for much of the worlds population because of
The tendency of these actions to hurt the poor the resulting high food prices, or it could spell
is then compounded, because there are so many dynamism for rural economies and the eventual
more rural poor in these early stages. end of rural poverty. Which future turns out
90 C. Peter Timmer

to be the case depends fundamentally on the high raw material prices will require large public
technology, economics, and politics of biofuel subsidies. Rich countries will be able to afford
production. these more easily than poor countries, so a
The potential devastating effects of biofuels combination of inelastic demand for fuel and a
are easy to conceptualize. The income elasticity willingness to pay large subsidies will keep grain
of demand for starchy staples (cereals and root prices very high.
crops for direct human consumption) is less than If this scenario plays out, what are the
0.2 on average, and falling with higher incomes consequences to economic growth and poverty
it is already negative in much of Asia. Adding reductions in developing countries? Not
in the indirect demand from grain-fed livestock surprisingly, the answer depends on the role of
products brings the average income elasticity to agriculture in individual countries, the pattern of
about 0.5, and this is holding steady in the face commodity production, and the distribution of
of rapid economic growth in India and China. rural assets, especially land. It is certainly possible
The potential supply growth seems capable of to see circumstances where small farmers respond
managing this growth in demand. to higher grain prices by increasing output and
But the demand for biofuels is almost reaping higher incomes. These incomes might
insatiable in relation to the base of production of be spent in the local, rural non-farm economy,
staple foods. The income elasticity of demand for stimulating investments and raising wages for
liquid fuels for automobile and truck fleets, not non-farm workers. In such environments, higher
to mention power generation, is greater than 1 in grain prices could stimulate an upward spiral of
developing countries. The average for the world prosperity.
is rising as middle class consumers in China, An alternative scenario seems more likely
India, and beyond seek to graduate from bicycles however, partly because small farmers have been
to motorbikes to automobiles. One simple under so much pressure in the past several decades.
calculation shows the dimension of the problem: If only large farmers are able to reap the benefits
if all the corn produced in the United States of higher grain prices, and their profits do not
were used for ethanol to fuel automobiles, it stimulate a dynamic rural economy, a downward
would replace just 15 percent of current gasoline spiral can start for the poor. High food prices cut
consumption in the US. Something has to give. the poors food intake, their children are sent to
If this were a market-driven process, it is work instead of school, and an intergenerational
easy to see what will give. High grain prices will poverty trap develops. If the poor are numerous
make ethanol production uneconomic, driving enough, the entire economy is threatened, and
down the demand (and returns on investments in the structural transformation comes to a halt. The
ethanol processing plants). Greater profitability of share of agriculture in both employment and GDP
grain production will stimulate a supply response, starts to rise, and this reversal condemns future
although this may take several years if improved generations to lower living standards. There will
technologies are needed. Grain prices will reach be much more structural poverty, and countries
a new equilibrium, with demand from the biofuel determined to cope with it will find themselves
industry having only a modest impact. supporting expensive and long-term safety nets
This is not the scenario most analysts see. for the poor.
Instead, political mandates to expand biofuel A reversal of the structural transformation
production in many countries will continue to as the regular path to economic development
drive investments in processing facilities, and and reduced poverty will be a historical event,
the need to keep these profitable in the face of countering the patterns generated by market forces
Asian Journal of Agriculture and Development, Vol. 7, No. 1 91

over the past several centuries. Such an event is history. They have little intuition about how
likely to have stark political consequences, as complex food systems function and change.
populations do not face the sustained prospect Undergraduates seeking graduate programs to
of lower living standards with equanimity. It is train them as food policy analysts have nowhere
possible, of course, that new technologies will to go.
come on-stream and lower energy costs across The failure of academic programs to provide
the board, thus allowing the biofuel dilemma to coherent training in food policy analysis is
disappear quietly. But it looks like a rocky couple partly due to the lack of clear career tracks for
of decades before that happens. such analysts. Just where are the jobs? What
institutional base provides the best opportunities
REFLECTIONS ON INTERNATIONAL BEST for food policy analysts to do good work and
PRACTICE IN FOOD POLICY FROM A BROADER be effective advocates of sound policies and
PERSPECTIVE programs? The historical record is quite fuzzy,
as successful food policy units have functioned
As we step back from the details of how to do in planning agencies, food logistics agencies,
food policy analysis, several other questions arise: trade and commerce ministries, ministries of
who will do the analysis and where will they be health, even ministries of agriculture. But there
trained; what is the appropriate institutional base is no clear set of lessons on which institutional
for food policy analysts; and why do this difficult base provides the best incentives for high-quality
analysis if politics is in command? analysis that is effectively plugged into the policy
The human capital investment needed to train process. Perhaps serendipity and leadership are
skilled food policy analysts is substantial and the the key variables in such success.
educational institutions capable of providing the Finally, there is a set of questions that
training are hard to find. A successful food policy revolves around the political economy of food
analyst needs an unusual blend of technical skills, policy. When politics is in command, which
mostly economic, and a broad vision of how food seems to be the normal state of affairs for most
systems interact and evolve over time. University developing countries, how do efficiency issues
Ph.D. programs have basically stopped doing stay on the agenda?
this kind of training. Economics programs, for When markets are in command, which
example, increasingly focus on microeconomic seems to be the main policy advice from the
decision-making that needs to be understood donor community to poor countries, how do
through careful experimental design of the data distributional and welfare issues stay on the
needed for analysis. Some extraordinarily smart agenda?
students have come out of these programs with More broadly, how do we educate
field experience in rural settings, and their journal policymakers as well as analysts? In democratic
articles are technical gems. But it is rare for these societies it would seem to require educating
students to be trained in the macroeconomics of citizens so that they could be informed voters.
growth and development, much less economic
92 C. Peter Timmer

REFERENCES Timmer, C.P. and S. Akkus. 2008. The Structural

Transformation as a Pathway out of Poverty:
Streeten, P. 1982. First Things First: Meeting Basic Analytics, Empirics and Politics. Working
Human Needs. London: Oxford University Press. Paper 150. Washington, DC: Center for Global
Timmer, C.P. 1986. Getting Prices Right: The Scope and
Limits of Agricultural Price Policy. Ithaca: Cornell Timmer, C.P., W.P. Falcon, and S.R. Pearson. 1983. Food
University Press. Policy Analysis. Baltimore, MD: Johns Hopkins
University Press for the World Bank.
Timmer, C.P. 2008. A World Without Agriculture: The
Structural Transformation in Historical Perspective. World Bank. 1993. The East Asian Miracle. New York:
Wendt Memorial Lecture. Washington, DC: Oxford University Press.
American Enterprise Institute.