| Federal agricultural policy has pursued two contradictory objectives: to subsidize prices received by farmers and to restrain agricultural production. In recent years the program has grown increasingly expensive and distortionary. An explanation is found in the interaction of price supports and acreage controls. The stimulus to production provided by subsidized prices has offset restrictions on acreage. This fact, together with the support given to the market price by the commodity loan program, suggests that aggregate output has been higher with the program in place than without it.;To establish the central thesis, an econometric investigation is undertaken of the behavior of corn producers in Iowa from 1980 through 1985. Several thousand farm-level observations are fit to a two-equation model explaining participation and planting decisions. Due to the program's complexity and to gaps in the data, the econometric specification must deal simultaneously with censoring, truncation, endogenous selection, and a form of sample attrition. Strong distributional assumptions are therefore needed to estimate the model; results should be viewed cautiously until their sensitivity to alternative assumptions can be assessed. |
