The Incidence of Agricultural Subsidies on Farmland Rental Rates: Overcoming Bias From Inertia, Expectations, and Tenancy Arrangements

Recent studies indicate that the effect of government subsidies on rental rates for farmland may be lower than once thought and lower than predictions from theory. However, there are still a number of unresolved issues in estimating subsidy incidence econometrically. We identify three such issues, inertia, expectations, and tenancy arrangements, and employ panel data from the state of Kansas to resolve them. Our econometric model suggests that subsidy incidence on rental rates is low in the short run, but consistent with predictions from theory in the long run.