Published in Journal of Agricultural and Resource Economics, Volume 18, Issue 2, December 1, 1993, pages 147-159. Copyright © 1993 Western Agricultural Economics Association. The definitive version is available at http://purl.umn.edu/30961.
NOTE: At the time of publication, the author Eric Fisher was not yet affiliated with Cal Poly.
This article analyzes the dynamic effects of the farm subsidies in the United States. The subsidies a farmer receives are based upon historical plantings, also called base 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.