THE DYNAMIC EFFECTS OF AGRICULTURAL SUBSIDIES IN THE UNITED-STATES

This article analyzes the dynamic effects of the farm subsidies in the United States. The subsidies a farmer receives are based upon histori cal plantings, also called base acreage. It is sometimes optimal for a farmer temporarily not to participate in a program in order to increa se future subsidies. The farmer's optimal policy is the solution to a deterministic dynamic program. Farmers with low base acreage opt out o f 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 out put of each of these crops and represent an annual deadweight loss of more than $2 billion.