The agriculture industry plays a critical role in the U.S. economy, and various industry sectors depend on the output of farms. To protect and raise farmers’ income, the U.S. government offers two subsidy programs to farmers: the Price Loss Coverage (PLC) program, which pays farmers a subsidy when the market price falls below a reference price, and the Agriculture Risk Coverage (ARC) program, which is triggered when farmers’ revenue is below a threshold. Given the unique features of PLC and ARC, we develop models to analyze their impacts on consumers, farmers, and the government. Our analysis generates several insights. First, while PLC always motivates farmers to plant more acres compared to the no-subsidy case, farmers may plant fewer acres under ARC, leading to a lower crop supply. Second, despite the prevailing intuition that ARC generally dominates PLC, we show that both farmers and consumers may be better off under PLC for a large range of parameter values, even when the reference price represents t...
An Analysis of Price vs. Revenue Protection: Government Subsidies in the Agriculture Industry
Saed Alizamir,Foad Iravani,H. Mamani
Published 2019 in Management Sciences
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- Publication year
2019
- Venue
Management Sciences
- Publication date
2019-01-01
- Fields of study
Agricultural and Food Sciences, Business, Economics, Computer Science
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