A Model of Producer Participation in Farm Commodity Programs

The paper develops a model of producer participation in farm commodity programs. In the model, producers maximize profits subject to a common technology, but a differentiated resource endowment. As a result, in equilibrium, some producers participate in the program, while others do not. The model is calibrated to data for the U.S. wheat sector to assess the impact of the freeze on program yields instituted under the 1985 Farm Bill. We find that the yield freeze substantially lowered variable input use and raised net returns, for participants and non-participants. This is a striking result, given proposals by some farm groups to reverse this policy