The valuation of subsidies in kind and their effects on costs

This study focuses on the effects of subsidies in kind on cost minimizing behavior and the resulting estimates of costs. It is shown that subsidies in kind may distort the usual equilibrium conditions and cost-output relationships among firms in the same industry. Even if they do not, the value of subsidized inputs to the firm, in terms of reduced costs, may differ from its market value. Methods are developed to cope with both problems, and estimations of the value and importance of subsidies in kind to the credit union industry are performed.