Experimental Work on Subsidies, Moral Hazard, and Market Power in Agricultural Markets

Abstract

"Laboratory markets are created to capture the important features of agricultural commodity markets. Sellers make production decisions and hold inventories before goods are sold. In a posted-bid auction environment, price supports create a moral hazard for sellers. Part of the price-support subsidy is transferred to buyers in the form of lower prices, which are close to those predicted by the buyers' Cournot level. The subsidy program is expensive for this reason. Lump-sum payments correct the moral hazard problem and are better at transferring income to sellers. However, transfers made at the beginning of each production period cause a decline in production levels." ("JEL" D44, C92) Copyright (c) 2009 Western Economic Association International.

Environmental Markets: What Do We Learn From the Lab?

“…(), and Phillips et al . () all find support for the theoretical prediction that decoupled support payments are nondistortionary as compared with production‐based subsidies. As with other market policy experiments, Bastian et al .…”

Subsidy Incidence in Factor Markets: An Experimental Approach

“…The subsidy of 20 tokens is comparable, on a perunit basis, with that used byBastian et al (2008) andPhillips et al (2010).5 Changing the elasticity of supply could result in predicting a subsidy incidence anywhere from zero to the full 20 tokens (100%) passed to the seller depending on if the supply schedule is perfectly elastic (flat) or perfectly inelastic (vertical), respectively. In our design, the predicted payment incidence is an equal share to buyers and sellers.…”