An Analysis of the Effect of Agricultural Subsidies on Agricultural Revenue Stabilization

Abstract

In Korea, the stability of agricultural revenue has been an important issue due to risk factors, including climate change. The central and regional government expands agricultural subsidies, which aims to support whole farm income stabilization directly. However, the purpose of agricultural subsidies in Korea includes supplying intermediate goods or enhancing agricultural capital to support an agricultural income, which is the core source of whole farm income. In this paper, we evaluate the effect of agricultural subsidies on agricultural revenue stabilization. This paper utilizes Antle(1987) s moment-based model to estimate farm households risk attitude. Moreover, the propensity score matching technique is well defined to evaluate the causal inference between agricultural subsidy receipt and risk premium reduction, estimated from farm households risk attitude. In the estimation results, the Arrow-Pratt risk aversion coefficient and downside risk aversion coefficient indicate the farm households in Korea are risk-averse and have an incentive to avoid downside risk. Their risk premium and relative risk premium are estimated, ranging from 0.45 106.50(million won), 2.04 84.88%, respectively. This paper finds the risk reduction effect ∼ ∼ of agricultural subsidies on herbal crop and field crop farming. Furthermore, in the estimation of heterogeneous effects according to the agricultural revenue quantile, we have found statistically significant risk reduction effects of agricultural subsidies in the low and middle classes.