Supply Response to Countercyclical Payments and Base Acre Updating under Uncertainty: An Experimental Study |
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| Authors: | Christopher R McIntosh Jason F Shogren Erik Dohlman |
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| Institution: | Christopher R. McIntosh is assistant professor, Department of Economics, University of Minnesota-Duluth, Jason F. Shogren is Stroock Professor of Natural Resource Conservation and Management, Department of Economics and Finance, University of Wyoming and the King Carl XVI Gustaf's Professor of Environmental Sciences, UmeåUniversity, and Eric Dohlman is agricultural economist with the Field Crops Branch, Market and Trade Economics Division, Economic Research Service, USDA. |
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| Abstract: | We design an experiment to simulate how people make agricultural production decisions under three policy scenarios, each incorporating direct payments (DPs): ( a ) price uncertainty without countercyclical payments (CCPs); ( b ) price uncertainty with CCPs; and ( c ) price uncertainty, CCPs, and uncertainty regarding base acreage updating. Results are the CCP program and perceived possibility of future base updating created incentives for subjects to invest more in program (base) crops, despite payments being decoupled from current production decisions. Those choosing to reduce revenue risk by increasing plantings of base crops may face reduced incomes, suggesting the efficiency of crop markets may be diminished. |
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| Keywords: | base acreage countercyclical payments experiments risk |
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