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Subsidy Incidence in Factor Markets: An Experimental Approach

Author

Listed:
  • Nagler, Amy M.
  • Menkhaus, Dale J.
  • Bastian, Christopher T.
  • Ehmke, Mariah D.
  • Coatney, Kalyn T.

Abstract

Laboratory market experiments are used to estimate the incidence of a stylized subsidy in factor market negotiations with university student and agricultural professional subjects. In separate sessions with both groups, prices converged approximately four and a half tokens higher when a 20-token per-unit subsidy was paid to buyers; this equates to 44% of the predicted 10-token split. A proportional market incentive treatment clarifies this subsidy effect. Discrepancies between predicted and observed incidence are similar to previous empirical estimates of subsidy incidence in agricultural land rental markets. A behavioral anomaly as well as buyer-buyer market competition may contribute to experimental results.

Suggested Citation

  • Nagler, Amy M. & Menkhaus, Dale J. & Bastian, Christopher T. & Ehmke, Mariah D. & Coatney, Kalyn T., 2013. "Subsidy Incidence in Factor Markets: An Experimental Approach," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 45(1), pages 17-33, February.
    • Handle: RePEc:cup:jagaec:v:45:y:2013:i:01:p:17-33_00
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    Citations

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    Cited by:

    1. Chian Jones Ritten & Christopher Bastian & Owen Phillips, 2021. "The relative effectiveness of law enforcement policies aimed at reducing illegal trade: Evidence from laboratory markets," PLOS ONE, Public Library of Science, vol. 16(11), pages 1-20, November.
    2. Chian Jones Ritten & Christopher Bastian & Jason F. Shogren & Thadchaigeni Panchalingam & Mariah D. Ehmke & Gregory Parkhurst, 2017. "Understanding Pollinator Habitat Conservation under Current Policy Using Economic Experiments," Land, MDPI, vol. 6(3), pages 1-13, August.
    3. Bastian, Christopher & Tejeda, Hernan & Hatzenbuehler, Patrick & Fuller, Kate Binzen & Hewlett, John & Westerhold, Ashlee & Sand, Shannon, 2022. "A Research-Based Extension Curriculum to Improve Negotiation Skills and Outcomes for Agricultural Stakeholders," Applied Economics Teaching Resources (AETR), Agricultural and Applied Economics Association, vol. 4(3), August.
    4. Abby Kelly & Kalyn T. Coatney & Xiaofei Li & Keith H. Coble, 2020. "Subsidy Incidence in the Presence of Bertrand Suppliers of Complementary Inputs: A U.S. Agricultural Example," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 479-501, September.
    5. Phillips, Owen R. & Bastian, Christopher T. & Cook, Benjamin R. & Menkhaus, Dale J. & Gao, Shen, 2025. "Choice of Auction or Negotiation in Linked Laboratory Markets: Cattle Market Implications," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 360827, Agricultural and Applied Economics Association.
    6. Stephanie Rosch & Sharon Raszap Skorbiansky & Collin Weigel & Kent D. Messer & Daniel Hellerstein, 2021. "Barriers to Using Economic Experiments in Evidence‐Based Agricultural Policymaking," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 531-555, June.
    7. Liesbeth Colen & Sergio Gomez Y Paloma & Uwe Latacz-Lohmann & Marianne Lefebvre & Sophie Thoyer & Raphaële Préget, 2015. "(How) can economic experiments inform EU agricultural policy?," JRC Research Reports JRC97340, Joint Research Centre.
    8. Poe, Abby & Coatney, Kalyn & Coble, Keith & Freeman, Matt, 2014. "Farm Subsidy Incidence in the Presence of Bertrand Competitors of Complementary Factors of Production: A Theoretical Approach," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162507, Southern Agricultural Economics Association.
    9. Karsyn Lamb & Kristiana Hansen & Christopher Bastian & Amy Nagler & Chian Jones Ritten, 2019. "Investigating Potential Impacts of Credit Failure Risk Mitigation on Habitat Exchange Outcomes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(3), pages 815-842, July.
    10. Panchalingam, Thadchaigeni & Jones Ritten, Chian & Shogren, Jason F. & Ehmke, Mariah D. & Bastian, Christopher T. & Parkhurst, Gregory M., 2019. "Adding realism to the Agglomeration Bonus: How endogenous land returns affect habitat fragmentation," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    11. Liesbeth Colen & Sergio Gomez y Paloma & Uwe Latacz-Lohmann & Marianne Lefebvre & Raphaële Préget & Sophie Thoyer, 2016. "Economic Experiments as a Tool for Agricultural Policy Evaluation: Insights from the European CAP," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(4), pages 667-694, December.

    More about this item

    JEL classification:

    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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