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Supply Response to Countercyclical Payments and Base Acre Updating under Uncertainty: An Experimental Study

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  • Christopher R. McIntosh
  • Jason F. Shogren
  • Erik Dohlman

Abstract

We design an experiment to simulate how people make agricultural production decisions under three policy scenarios, each incorporating direct payments (DPs): (a) price uncertainty without countercyclical payments (CCPs); (b) price uncertainty with CCPs; and (c) price uncertainty, CCPs, and uncertainty regarding base acreage updating. Results are the CCP program and perceived possibility of future base updating created incentives for subjects to invest more in program (base) crops, despite payments being decoupled from current production decisions. Those choosing to reduce revenue risk by increasing plantings of base crops may face reduced incomes, suggesting the efficiency of crop markets may be diminished. Copyright 2007, Oxford University Press.

Suggested Citation

  • Christopher R. McIntosh & Jason F. Shogren & Erik Dohlman, 2007. "Supply Response to Countercyclical Payments and Base Acre Updating under Uncertainty: An Experimental Study," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 1046-1057.
  • Handle: RePEc:oup:ajagec:v:89:y:2007:i:4:p:1046-1057
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2007.01011.x
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    References listed on IDEAS

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    1. Trudy Ann Cameron, 1991. "Interval Estimates of Non-Market Resource Values from Referendum Contingent Valuation Surveys," Land Economics, University of Wisconsin Press, pages 413-421.
    2. Krinsky, Itzhak & Robb, A Leslie, 1986. "On Approximating the Statistical Properties of Elasticities," The Review of Economics and Statistics, MIT Press, pages 715-719.
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    Cited by:

    1. Bhaskar, Arathi & Beghin, John C., 2007. "How Coupled Are Decoupled Farm Payments? A Review of the Evidence," Staff General Research Papers Archive 12841, Iowa State University, Department of Economics.
    2. Ian Coxhead & Vu Hoang Linh & Le Dong Tam, 2012. "Global market shocks and poverty in Vietnam: the case of rice," Agricultural Economics, International Association of Agricultural Economists, pages 575-592.
    3. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, pages 3138-3160.
    4. Arathi Bhaskar & John C. Beghin, 2010. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, pages 849-858.
    5. Mitchell, Paul D. & Rejesus, Roderick M. & Coble, Keith H. & Knight, Thomas O., 2010. "A Real Options Framework for Analyzing Program Participation as Human Capital Investments: The Case of the Average Crop Revenue Election (ACRE) Program," Staff Paper Series 547, University of Wisconsin, Agricultural and Applied Economics.
    6. Bhaskar, Arathi & Beghin, John C., 2008. "Decoupled farm payments and the Role of Base Updating under uncertainty," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6339, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Bhaskar, Arathi & Beghin, John C., 2009. "How Coupled Are Decoupled Farm Payments? A Review of the Evidence," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), April.
    8. Bakhshi, Samira & Kerr, William A., 2009. "Is There Supply Distortion In The Green Box? An Acreage Response Approach," Working Papers 51093, Canadian Agricultural Trade Policy Research Network.
    9. Bhaskar, Arathi & Beghin, John C., 2007. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," Staff General Research Papers Archive 12851, Iowa State University, Department of Economics.
    10. Voica, Daniel C., 2014. "Are Subsidies Decoupled from Production in the Presence of Incomplete Financial Markets?," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169788, Agricultural and Applied Economics Association.
    11. O'Donoghue, Erik J. & Whitaker, James B., 2006. "How distorting are direct payments?," 2006 Annual meeting, July 23-26, Long Beach, CA 21247, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, pages 28-38.

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