Market Effects of In-Kind Subsidies Report as inadecuate

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In-kind price subsidies are a new and important feature of U.S. agricultural policy. Yet the market effects of such subsidies have not been widely discussed in the professional literature even through theydiffer importantly from similar cash subsidies. This paper examines in-kind subsidies with simple, static demand and supply functions. In-kind price subsidies push down prices to favored buyers andincrease total sales relative to no subsidy or to an equivalent cash subsidy. Inventory holdings by the subsidizing authority are diminished. However, the effects of an in-kind subsidy upon prices received by sellersand commercial sales volume (net of stock disposals) are problematic, depending upon the price elasticity of demand in the subsidized market. If the demand, including retaliation by other sellers, is price elastic, then an in-kind subsidy will increase prices received by sellers and commercial sales volume. But if the demand is inelastic, then sellers' prices andcommercial sales volume will drop relative to a no-subsidy situation or to an equivalent cash subsidy. These conclusions do not depend upon the methods by which the scheme is administered.

Subject(s): Agricultural and Food Policy

International Relations/Trade

Issue Date: 1988

Publication Type: Working or Discussion Paper

PURL Identifier:

Total Pages: 21

Series Statement: Working Paper


Record appears in: International Agricultural Trade Research Consortium > Working Papers

Author: Houck, James P.


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