Decomposing Crop Loss: The Role of Subsidies and Market Price Uncertainty
Download Paper Abstract Farmers choose to leave between 10% and 60% of harvestable crops on the field in the United States. This paper studies two of the economic drivers of this crop loss: price uncertainty and subsidies. I develop a dynamic stochastic structural framework of crop loss in agricultural production, incorporating subsidy distortions and farmer price expectations. Estimated with wheat data, the baseline model indicates that the presence of subsides targeting downside price risk cause crop loss to be higher relative to a no-subsidy world....