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Production Incentives from Static Decoupling: Entry, Exit and Use Exclusion Restrictions

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  • Just, David R.
  • Kropp, Jaclyn D.

Abstract

The use of agricultural decoupled support has increased as World Trade Organization (WTO) member nations implement less trade distortive policies. However, the true production effects of these policies are still unclear. We show how the exclusion restrictions of U.S. direct payments, namely, the fruit and vegetable restriction and the requirement of keeping land in good agricultural use, cause the decoupled payment to become fully coupled over time as relative profits adjust. Theoretically, decoupled payments can be more trade distorting than an equivalent (same level of taxpayer expenditure) fully coupled subsidy.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49158.

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Date of creation: 2009
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Handle: RePEc:ags:aaea09:49158

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Keywords: decoupled payments; infra-marginal support; cross-subsidization; Agricultural and Food Policy; International Relations/Trade; Land Economics/Use; Q15; Q17; Q18;

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  1. Hennessy, David A., 1998. "The Production Effects of Agricultural Income Support Policies Under Uncertainty," Staff General Research Papers 1207, Iowa State University, Department of Economics.
  2. Rucker, Randal R & Thurman, Walter N & Sumner, Daniel A, 1995. "Restricting the Market for Quota: An Analysis of Tobacco Production Rights with Corroboration from Congressional Testimony," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 142-75, February.
  3. 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.
  4. Kirwan, Barrett E., 2008. "The Incidence of U.S. Agricultural Subsidies on Farmland Rental Rates," Working Papers 42714, University of Maryland, Department of Agricultural and Resource Economics.
  5. 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.
  6. Harry de Gorter & David R. Just & Jaclyn D. Kropp, 2008. "Cross-subsidization Due to Inframarginal Support in Agriculture: A General Theory and Empirical Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(1), pages 42-54.
  7. Bhaskar, Arathi & Beghin, John C., 2007. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," Staff General Research Papers 12851, Iowa State University, Department of Economics.
  8. Barry K. Goodwin & Ashok K. Mishra, 2006. "Are “Decoupled” Farm Program Payments Really Decoupled? An Empirical Evaluation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 73-89.
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