Cross-subsidization Due to Inframarginal Support in Agriculture: A General Theory and Empirical Evidence

Harry de Gorter (), David Just and Jaclyn D. Kropp

American Journal of Agricultural Economics, 2008, vol. 90, issue 1, 42-54

Abstract: A general theory of cross-subsidization due to inframarginal support is developed. Two sources of output distortion are identified: exit deterrence and extramarginal output. Some firms would not be in business without the subsidy. Cost savings due to declining average costs are always greater than the losses incurred where price equals marginal cost. Moreover, it is theoretically possible for inframarginal subsidies to expand output more than equivalent fully coupled subsidies. Empirical analysis of U.S. dairy subsidies isolates these components of cross-subsidization and finds distortions from inframarginal support to be substantial, with implications for trade negotiations, dispute settlement, and policy formulation. Copyright 2008, Oxford University Press.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://hdl.handle.net/10.1111/j.1467-8276.2007.01044.x (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:90:y:2008:i:1:p:42-54

Access Statistics for this article

American Journal of Agricultural Economics is currently edited by Madhu Khanna, Brian E. Roe, James Vercammen and JunJie Wu

More articles in American Journal of Agricultural Economics from Agricultural and Applied Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().