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The Dynamic Effects Of Agricultural Subsidy Programs In The United States


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  • de Gorter, Harry
  • Fisher, Eric O'N.


This paper analyzes the dynamic effects of the acreage restrictions and land diversion requirements that are characteristic of the farm subsidy programs in the United States. The subsidy payments a farmer receives are based upon historical base acreage, and it 1s sometimes optimal for a farmer not to participate in a pr9gr~m in order to increase base acreage in anticipation of higher future subsidies. This paper determines the farmer's optimal policy as the solution to a deterministic dynamic program. It shows that farmers with low base acreage typically opt out of these programs, whereas those with high base acreage participate in them. The paper concludes with an examination of aggregate data from the programs involving barley, corn, cotton, oats, rice, sorghum, and wheat during 1987. It shows that these programs actually increase the aggregate output of each of these crops and that they represent an annual deadweight loss of more than $3 billion.

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Bibliographic Info

Paper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 6875.

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Date of creation: 1989
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Handle: RePEc:ags:cudawp:6875

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Keywords: Crop Production/Industries; Land Economics/Use;


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Cited by:
  1. Labson, B. Stephen, 1992. "Modelling Distortionary Aspects of the US Wheat Program and Policy Reform," 1992 Conference (36th), February 10-13, 1992, Canberra, Australia 146537, Australian Agricultural and Resource Economics Society.
  2. de Gorter, Harry & Fisher, Eric O'N., 1993. "The Dynamic Effects Of Agricultural Subsidies In The United States," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December.


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