The Dynamic Effects of Agricultural Subsidies in the United States

• Main Authors: Gorter Harry de, Eric O'N. Fisher
• Format: Article
• Language: English
• Published: Western Agricultural Economics Association 1993-12-01
• Series: Journal of Agricultural and Resource Economics
• Subjects: agricultural subsidies; dynamic programming
• Online Access: https://ageconsearch.umn.edu/record/30961

This article analyzes the dynamics effects of the farm subsidies in the United States. The subsidies a farmer receives are based upon historical plantings, also called based acreage. It is sometimes optimal for a farmer temporarily not to participate in a program in order to increase future subsidies. The farmer's optimal policy is the solution to a deterministic dynamic program. Farmers with low base acreage opt out of these programs, whereas those with high base acreage participate in them. The article examines aggregate data involving corn, cotton, rice, and wheat during 1987. It shows that these programs increase the output of each of these crops and represent an annual deadweight loss of more than $2 billion.