The Budgetary and Resource Allocation Effects of Revenue Assurance

The efficiency of redistribution and the level of government costs of revenue assurance are compared with current farm programs. The results suggest that a revenue assurance program that uses a fixed base acreage and actual or county average yields to assure whole farm revenues could provide a significant improvement over existing policies. The result derives in large part because revenue assurance works only when needed and it works on the component of the objective function (revenue) that is of greatest relevance to producers. Also a fixed base revenue assurance scheme would eliminate resource misallocation costs associated with current programs. A revenue assurance scheme that guaranteed 100 percent of base revenues would provide almost as much benefit to producers as existing programs at less than half the cost. Revenue assurance at the 80 or 70 percent level would result in a significant drop in producer welfare, but an even greater drop in government expenditures.