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The Dynamic Effects Of Agricultural Subsidy Programs In The United States

Author

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

Abstract

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.

Suggested Citation

  • de Gorter, Harry & Fisher, Eric O'N., 1989. "The Dynamic Effects Of Agricultural Subsidy Programs In The United States," Working Papers 6875, Cornell University, Department of Applied Economics and Management.
  • Handle: RePEc:ags:cudawp:6875
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    File URL: http://purl.umn.edu/6875
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    Cited by:

    1. 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.
    2. Labson, B. Stephen, 1994. "Modeling distortionary aspects of the U.S. wheat program and policy reform," Journal of Policy Modeling, Elsevier, vol. 16(3), pages 237-263, June.

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