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Capitalization, conditionality, and dilution: land prices and the U.S. wheat program

Journal of Policy Modeling 12(3): 605-622
Capitalization, conditionality, and dilution: land prices and the U.S. wheat program
This paper argues that conditionality associated with government support programs makes the assessment of their capitalization effects more treacherous than conventionally believed. In the case of the U.S. wheat program, for instance, there is less than full participation by farmers. Participating producers must set aside a specified fraction of their acreage in order qualify for deficiency payments. Given that farms differ in such respects as the variability of yields within the farm and other cost conditions, the additional costs imposed by complying with set-aside requirements may not compensate for the additional benefits from price supports. Because of this conditionality, dilution of capitalization occurs. We illustrate these effects using a general equilibrium model.

Accession: 002042771

DOI: 10.1016/0161-8938(90)90015-7

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