Jeffrey W. Hopkins

The Incidence of Government Program Payments on Agricultural Land Rents: The Challenges of Identification

Economic reasoning and some empirical evidence suggest that government payments increase rents on agricultural lands to which the payments are attached (Barnard et al., Floyd, Gardner, Kuchler and Tegene). The degree to which this occurs—the incidence of current expected government payments on current rent—is relevant for policy in two ways. First, it provides information about the distribution of payment benefits vis-a-vis landowners and farmers. For example, if payment benefits are intended for farmers rather than landowners, and the incidence is high, a share of the benefits may miss their target.1 Because about 60% of U.S. farmland is owned by nonoperators, there is a real potential for this kind of misallocation (Hopkins, Morehart, and Bohman). Second, the level of incidence may reflect the degree to which government programs that give rise to these payments alter production. A high incidence may reflect a low supply response to a government program, because a small share of the payments is dissipated via lower output prices (due to greater quantities supplied) and higher prices for input factors besides land (due to greater quantities demanded). A low incidence may reflect a large supply response and a greater appropriation of payment benefits to commodity consumers and suppliers of other input factors, such as machinery and human capital. Thus, reliable