ANALYSIS OF GOVERNMENT FARM SUBSIDIES ON FARMLAND CASH RENTAL RATES USING A FIXED EFFECT SPATIAL DISTRIBUTED LAG MODEL AND A TRANSLOG COST MODEL

The objective of this study is to examine how factors such as government payments, soil productivity ratings, commodity selling price, corn and soybean production, and spatial attributes affect cash rental rates. Baseline estimates of the effects of government payments on cash rents are determined using a fixed effect, distributed lag model. The results of this model are compared to a distributed lag model that incorporates spatial effects. A second model estimates the impact of government subsides on farm cost structure. This is accomplished estimating a fixed effect, translog cost function that also incorporates spatial effects. The data used in the analysis is the Illinois Farm Business Farm Management (FBFM) Economic Management Analysis (EMA), containing more than five thousand Illinois FBFM clients annually from 1996 to 2001.