Agric. Econ. - Czech, 2015, 61(1):39-49 | DOI: 10.17221/60/2014-AGRICECON

Agricultural subsidy with capacity constraints and demand elasticityOriginal Paper

You-Hua CHEN^1,2, Jun-Yi WAN¹, Chan WANG³

¹ College of Economics and Management, South China Agricultural University, Guangzhou, P.R. China

² Guangdong Centre for Rural Economic Studies, South China Agricultural University, Guangzhou, P.R. China

³ Institute of Industrial Economics, Jinan University, Guangzhou, P.R. China

Agricultural subsidy has attracted more and more attention. This paper captures the effects of subsidy (including area subsidy and price subsidy) on the total sown areas of crops based on the assumption that subsidy has both stimulating effects and inhibiting effects. Different from the prior studies, this paper considers the impacts of the farmland constraint and demand elasticity and some interesting conclusions are achieved. Firstly, a stimulating effect increases crop sown areas while an inhibiting effect reduces them. Secondly, the output efficiency of farmland as well as the demand elasticity has a major impact on the government subsidy. Besides, the capacity constraint makes thing difference and the government should choose between the areas subsidy and price subsidy under different conditions. Finally, this paper offers an empirical test on the conclusions by adopting the Chinese agricultural statistical data.

Keywords: allowance, constrained farmland inputs, inhibiting effect, stimulating effect

Published: January 31, 2015  Show citation