Food Subsidies: Incentive Benefit and Competitive Design

Firstly, the evolution process of grain subsidy policy in China was introduced. In the first stage, the nation carried out grain policy of unified purchase and sale. In the second stage, the nation carried out price subsidy for grain purchasing. In the third stage, the nation carried out direct subsidy for grain production. Secondly, the incentive mechanism of grain subsidy was analyzed under two conditions based on the basic hypotheses. Under the condition of complete information, the effects of grain subsidy policy are optimal. Under the condition of information asymmetry, there are two cases. Grain subsidy policy shows zero effect when information is completely opaque. When information is translucence, the effect of the policy will be suboptimal due to the problem of adverse selection. The adjustment design for incentive mechanism of subsidy was made in order to improve the effects of subsidy policy. The grain production choice of farmers was also analyzed according to evaluation function of farmers’ achievements. Finally, the causes why the productive positivity of farmers was not improved with the development of economy and society were discussed.