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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