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The economics of coupled farm subsidies under costly and imperfect enforcement

Corresponding Author

Konstantinos Giannakas

^a Department of Agricultural Economics, University of Nebraska-Lincoln, Lincoln, Nebraska, USA 68583–0922

Corresponding author. Present address: Department of Agricultural Economics, University of Nebraska-Lincoln, 216 H.C. Filley Hall, Lincoln, Nebraska, USA 68583–0922. Tel.: 1–402–472–2041; fax: +1–402–472-3460 E-mail address:[email protected] (K. Giannakas)Search for more papers by this author

Murray Fulton,

Murray Fulton

^b Department of Agricultural Economics and Centre for the Study of Co-operatives, University of Saskatchewan, Saskatoon, Sask., Canada S7N 5A8

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Konstantinos Giannakas,

Corresponding Author

Konstantinos Giannakas

^a Department of Agricultural Economics, University of Nebraska-Lincoln, Lincoln, Nebraska, USA 68583–0922

Murray Fulton,

Murray Fulton

^b Department of Agricultural Economics and Centre for the Study of Co-operatives, University of Saskatchewan, Saskatoon, Sask., Canada S7N 5A8

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First published: 09 August 2005

https://doi.org/10.1111/j.1574-0862.2000.tb00007.x

Citations: 9

JEL classification: H22; H23; K42; Q18

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Abstract

This study relaxes the assumption of perfect and costless policy enforcement found in traditional agricultural policy analysis and introduces enforcement costs and cheating into the economic analysis of output subsidies. Policy design and implementation is modeled in this paper as a sequential game between the regulator who decides on the level of intervention, an enforcement agency that determines the level of policy enforcement, and the farmer who makes the production and cheating decisions. Analytical results show that farmer compliance is not the natural outcome of self-interest and complete deterrence of cheating is not economically efficient. The analysis also shows that enforcement costs and cheating change the welfare effects of output subsidies, the efficiency of the policy instrument in redistributing income, the level of government intervention that transfers a given surplus to agricultural producers, the socially optimal income redistribution, and the social welfare from intervention.

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Volume22, Issue1

January 2000

Pages 75-90

The economics of coupled farm subsidies under costly and imperfect enforcement

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The economics of coupled farm subsidies under costly and imperfect enforcement

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