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Subsidy Incidence in Factor Markets: An Experimental Approach

Amy M. Nagler, Dale J. Menkhaus, Christopher T. Bastian, Mariah Tanner Ehmke () and Kalyn Coatney ()

Journal of Agricultural and Applied Economics, 2013, vol. 45, issue 1, 17-33

Abstract: Laboratory market experiments are used to estimate the incidence of a stylized subsidy in factor market negotiations with university student and agricultural professional subjects. In separate sessions with both groups, prices converged approximately four and a half tokens higher when a 20-token per-unit subsidy was paid to buyers; this equates to 44% of the predicted 10-token split. A proportional market incentive treatment clarifies this subsidy effect. Discrepancies between predicted and observed incidence are similar to previous empirical estimates of subsidy incidence in agricultural land rental markets. A behavioral anomaly as well as buyer-buyer market competition may contribute to experimental results.

Date: 2013
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