Measuring political information rents: Evidence from the European agricultural reform*

- We present a method to estimate information rents.
- We use survey data from farmers in the context of the 2005 European agricultural reform.
- We account for reluctance to reveal willingness to accept and strategic misreporting.
- We estimate that information rents are around 14% of total compensation paid.
- The willingness to accept the reform is uncorrelated with observables.

This paper develops a method to estimate information rents - the difference between the actual compensation and the true willingness to accept - 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 14% of total compensation paid. Moreover, we show that the reform could not have been implemented distinctly cheaper by conditioning compensation schemes on observable factors.