The name is absent

4) E — A = (q∏¹ — Q∏⁰)(Pa - α - Pn) - α q∏^o = (q∏¹ - q∏⁰)(pA - Pn) - α q∏¹,
where the quantities exported refer to the aggregate amount purchased by the favored foreign
roasters who received the “special deals” from the IBC. Utilizing the actual parameter values
prevailing in 1964 ¹¹, the increase in exports is assumed to be 1.8 million bags, the amount by
which Brazil was previously underselling its quota. The difference between PA and PN was
$23.33. E, the potential gain from expanding exports, is 1.8 million bags multiplied by
$23.33/bag, or $42 million. A, the revenue sacrificed to achieve E, was approximately the value
of the avisos emitted, which averaged $21 million during 1966-69.¹² If my estimate is correct,
Brazil and the favored foreign importers roughly split the benefits to Brazil from expanding
member market exports ($42 million). Thus, the amount of rebates initially emitted was
consistent with the use of tax rebates to achieve a profitable “price discrimination,” as argued by
Delfim Netto and Andrade Pinto (1965).

Note that these calculations underestimate the profitability of the export tax rebate
scheme if the rebates caused exporters to bid up the price of Brazilian coffee, as I subsequently
show did occur. If the rebates caused a nominal price increase, the net cost of any nominal
rebate was lower, since the higher price increased revenues to Brazil (Figure 2b). For example,
assuming that the export price rose by about half the unit export tax rebate, where the unit export
tax rebate is calculated by dividing the total value of rebates by total quota exports, the net cost
of the rebates was about half the nominal cost. On this basis, Brazil could have issued about $84
million in avisos before exhausting the benefits that the higher exports achieved under the
assumed initial conditions.

¹¹ PA = $46.66, PN= $23.33, qII⁰ = 6.28 million bags, and qII1= 8.08 million bags.

¹² Rebates were initiated in late 1965; 1966 is the first whole year during which rebates were paid.

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