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The role of vertical market structure on subsidy incidence: The case of agricultural markets

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  • Heins, Gunnar
  • Mercadal, Ignacia

Abstract

We empirically investigate the pass-through of agricultural subsidies to patented seed expenses. Theory predicts that when input suppliers have market power and the downstream market is competitive, they will at least partially capture the subsidy. Using a novel instrument for subsidies, we test this prediction using 2017 U.S. Census of Agriculture data and find that a 1% increase in subsidies leads to a 0.5% increase in seed expenses.

Suggested Citation

  • Heins, Gunnar & Mercadal, Ignacia, 2025. "The role of vertical market structure on subsidy incidence: The case of agricultural markets," Economics Letters, Elsevier, vol. 254(C).
    • Handle: RePEc:eee:ecolet:v:254:y:2025:i:c:s0165176525002472
    DOI: 10.1016/j.econlet.2025.112410
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    References listed on IDEAS

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    1. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    2. Pavel Ciaian & Edoardo Baldoni & d'Artis Kancs & Dušan Drabik, 2021. "The Capitalization of Agricultural Subsidies into Land Prices," Annual Review of Resource Economics, Annual Reviews, vol. 13(1), pages 17-38, October.
    3. Barrett E. Kirwan & Michael J. Roberts, 2016. "Who Really Benefits from Agricultural Subsidies? Evidence from Field-level Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(4), pages 1095-1113.
    4. Barrett E. Kirwan, 2009. "The Incidence of U.S. Agricultural Subsidies on Farmland Rental Rates," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 138-164, February.
    5. John E. Floyd, 1965. "The Effects of Farm Price Supports on the Returns to Land and Labor in Agriculture," Journal of Political Economy, University of Chicago Press, vol. 73(2), pages 148-148.
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