Government support, transfer efficiency, and moral hazard within heterogeneous regions in Canadian Agriculture

This study estimates the transfer efficiency of government payments on Canadian agriculture. Three measures of efficiency are used: (1) the capitalization of support into farmland values, (2) the rate of income stabilization, and (3) the effect of past government support on the variance of income. We derive transfer efficiency estimates by applying panel econometric techniques to provincial time series data. With regard to the capitalization formula, we find that the capitalization of government into farmland values is homogeneous across provinces. We estimate the rate of capitalization at approximately $11.76 for every $1.00 increase in government support. A substantial amount of heterogeneity was found for the stabilization equation. Four homogeneous regions were found for Canada: 1) Maritimes; 2) Central Canada; 3) Western Canada; and 4) British Columbia. Among these heterogeneous regions, substantial differences in the stabilization coefficient estimates were found. There is also evidence of a trend in government payments in the Maritimes, indicating evidence of rent seeking. The variance of income was found to be correlated with past levels of government support, indicating that government support may be causing a moral hazard problem.