Do Direct Payments Distort Producers' Decisions? An Examination of the Farm Security and Rural Investment Act of 2002

Posted: 22 Feb 2010

See all articles by Erik O'Donoghue

Erik O'Donoghue

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

James Q. Whitaker

affiliation not provided to SSRN

Date Written: Spring 2010

Abstract

Do direct payments alter operators' acreage decisions? The authors use an event study with individual-level data in a panel-data setting to examine how an exogenous change in direct payments affects individual farmers' production decisions. They track changes in acreage across time and examine whether an exogenous, government implemented Act that allowed farmers to update base acres altered individual operators' acreage decisions. Results suggest that direct payments do change individual acreage decisions, ranging from approximately 44 to 78 acre increases (9 to 16% changes). Their results have no implications for aggregate production impacts.

Keywords: acreage response, direct payments, Q12, Q18

Suggested Citation

O'Donoghue, Erik and Whitaker, James Q., Do Direct Payments Distort Producers' Decisions? An Examination of the Farm Security and Rural Investment Act of 2002 (Spring 2010). Applied Economic Perspectives and Policy, Vol. 32, Issue 1, pp. 170-193, 2010. Available at SSRN: https://ssrn.com/abstract=1556175 or http://dx.doi.org/ppp005

Erik O'Donoghue (Contact Author)

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States
(202) 694-5585 (Phone)

James Q. Whitaker

affiliation not provided to SSRN ( email )

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