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Abstract
This paper re-examines the motivation for government intervention in agriculture to
support farm prices and incomes. A model is outlined in which the government has a
preference for higher farm incomes but fails to provide farmers with the socially optimal
level of price support, even when one accepts the government's income redistribution goals
as a valid reflection of social preference. It is shown that agricultural policy has an
intervention bias: government price supports generally are higher than would be socially
optimal. The source of the intervention bias is a time inconsistency in optimal agricultural
policy formation, caused by the government's inability to precommit to a rule for setting
future price support levels. Simulation results indicate that in some circumstances the
intervention bias in agricultural policy can be substantial.