Public Inputs in Agriculture

Abstract

Public inputs are important factors of production in a number of industries. Examples include air traffic control facilities in the airline industry, federal deposit insurance in the savings and loan industry and public expenditures for research and development in agriculture. The optimal conditions for the provision of these public inputs are relatively straightforward and have been known for some time [5; 10; 11; 12; 16]. These social optimal conditions are to be chosen by an omnipotent central planner. In the absence of a central planner, the existence of decentralized decision making and heterogeneous agents in a market economy may result in the sub-optimal provision of public inputs. A case can be made that the sub-optimal provision of public inputs is the cause of considerable inefficiency in certain industries. Airport and traffic control capacity has failed to expand as the demand for air travel has grown over the last decade. The consequence is considerable delay and congestion in air travel. In contrast, the over-utilization of public deposit insurance has led to disaster in the savings and loan industry. In each case, the problems arose as a consequence of the failure of public input levels to adjust to significant changes in the industry. Some questions immediately come to mind. Are there institutional forms that allow for the automatic adjustment of public inputs over time? If these institutional forms currently exist, do they lead to social optimal results? The optimal provision of public inputs in a dynamic setting is a significant and topical issue. The purpose of this paper is to explore the dynamic properties of existing institutional arrangements for the provision of public inputs. The class of public input programs we evaluate were chosen because they do not require the existence of an omnipotent central planner and because they have very interesting dynamic properties. The programs we consider are the commodity