The Economics of Generic Income Stabalization Schemes

Generic income stabilization schemes, which resemble an actual NISA policy adopted recently in Canada, encourage farmers to set aside funds in high income year for use in low income years through a formal procedure. Their economic effects are investigated using the prudent farm household model. The effects of generic income stabilization schemes are hinged on the interaction between generic stabilization schemes and precautionary saving. It is also found that the designs of generic income stabilization schemes are fundamentally important for their potential supply effects. Conditions for characterizing various generic income stabilization schemes as either production neutral or decoupled are derived. Generic income stabilization scheme operated as a pure stabilization program has little stabilizing value for the optimal prudent farm household.