Disentangling the Consequences of Direct Payment Schemes in Agriculture on Fixed Costs, Exit Decisions, and Output
AbstractThis paper goes beyond orthodox considerations of direct payment eÂ®ects on agricultural output, by highlighting the role of subsidies in aÂ®ecting individual producers' ability to cover Â¯xed costs, and in distorting the volume of aggregate production and net trade by implicitly discouraging exits. The theoretical model considers both taxpayer and consumer Â¯nanced decoupled direct payment schemes and compares them to a coupled production subsidy. In terms of possible producer responses to direct payments, we propose an analytical framework of production decision-making in the presence of a stochastic distribution of Â¯xed costs across representative farms. We show that decoupled payments in theory can have a larger eÂ®ect on output than coupled payments. The model explicitly recognizes three consequences of domestic support: (a) induce exit or entry; (b) bias production incentives to domestic markets; and (c) cross-subsidize export in global markets. An empirical model of the U.S. wheat sector is developed to illustrate the relative potential impacts of coupled versus decoupled payments on output through the eÂ®ects on a farmer's ability to cover Â¯xed costs and hence exit decisions.
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Bibliographic InfoArticle provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.
Volume (Year): 87 (2005)
Issue (Month): 5 ()
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Other versions of this item:
- Chau, Nancy H. & de Gorter, Harry, 2001. "Disentandling the Consequences of Direct Payment Schemes in Agriculture on Fixed Costs, Exit Decisions and Output," Working Papers 127663, Cornell University, Department of Applied Economics and Management.
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David A. Hennessy, 1998.
"The Production Effects of Agricultural Income Support Policies under Uncertainty,"
American Journal of Agricultural Economics,
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"Efficiency of Decoupled Farm Programs Under Distortionary Taxation,"
Staff General Research Papers
690, Iowa State University, Department of Economics.
- Moschini, GianCarlo & Sckokai, Paolo, 1994. "Efficiency of Decoupled Farm Programs Under Distortionary Taxatioin," Staff General Research Papers 12713, Iowa State University, Department of Economics.
- GianCarlo Moschini & Paolo Sckokai, 1994. "Efficiency of Decoupled Farm Programs under Distortionary Taxation," Center for Agricultural and Rural Development (CARD) Publications 94-gatt5, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- GianCarlo Moschini & Paolo Sckokai, 1994. "Efficiency of Decoupled Farm Programs under Distortionary Taxation," Food and Agricultural Policy Research Institute (FAPRI) Publications 94-gatt5, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
- Daniel A. Sumner & Christopher A. Wolf, 1996. "Quotas without Supply Control: Effects of Dairy Quota Policy in California," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 354-366.
- Kuhn, Betsey A. & Offutt, Susan E., 1999. "Farm Policy in an Era of Farm Diversity," Choices, Agricultural and Applied Economics Association, vol. 14(3).
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