This article shows that credit market
imperfections have important implications for the
distribution of policy rents. In a model with land as fixed
factor and credit market imperfections, when an area
payment is given, land rents go up by more than the
subsidy. On aggregate farms may lose from the subsidy.
The results depend on the extent to which subsidies have
direct and indirect effects on the credit constraints, on
whether farms rent or own land, and on farm
heterogeneity.
