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Intervention bias in agricultural policy
Author(s) -
Myers Robert J.
Publication year - 1992
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.1992.tb00214.x
Subject(s) - economic interventionism , economics , intervention (counseling) , government (linguistics) , price support , redistribution (election) , public economics , agriculture , preference , agricultural policy , redistribution of income and wealth , microeconomics , public good , political science , psychology , ecology , linguistics , philosophy , psychiatry , production (economics) , politics , law , biology
This paper re‐examines the motivation for government intervention in agriculture to support farm prices and incomes. A model is outlined in which the government has a preference for higher farm incomes but fails to provide farmers with the socially optimal level of price support, even when one accepts the government's income redistribution goals as a valid reflection of social preference. It is shown that agricultural policy has an intervention bias: government price supports generally are higher than would be socially optimal. The source of the intervention bias is a time inconsistency in optimal agricultural policy formation, caused by the government's inability to precommit to a rule for setting future price support levels. Simulation results indicate that in some circumstances the intervention bias in agricultural policy can be substantial.