Abstract
AbstractThis article examines motivations underlying the government's choice of alternative policy mechanisms for subsidizing agriculture. Optimal policies are analyzed for three government objectives: one where the government wishes to ensure a minimum level of net income for all farmers, a second where the government's only concern is to transfer income from consumers and taxpayers to the farm sector, and a final “augmented” income‐transfer objective. The analysis offers an explanation for agricultural policy mechanisms that involve overproduction by high‐cost producers, relative to a free‐market equilibrium. Such a distortion might arise from the existence of nonmarket values for the production of relatively high‐cost farmers in the government's objective.
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