Intervention bias in agricultural policy

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.


Issue Date:
1992-10
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/172959
Published in:
Agricultural Economics: The Journal of the International Association of Agricultural Economists, Volume 07, Issue 3-4
Page range:
209-224
Total Pages:
16




 Record created 2017-04-01, last modified 2017-08-27

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