THE CAPITALIZATION OF DECOUPLED GOVERNMENT SUBSIDIES INTO AGRICULTURAL LAND RENTS

Abstract Under the 2002 U.S. Farm Act, direct and countercyclical payments are intended to be “decoupled ” from production decisions in the current period. To accomplish this, these payments are tied to farms with agricultural land, called “base ” acres, that has a history of production. I estimate the implicit rental rates of base and nonbase acres, showing that a premium is paid for base acres. The premium is driven by systematic differences between base and nonbase acres, including the receipt of direct and countercyclical payments. I discuss some of the domestic and international policy implications of the capitalization of government payments into agricultural rental rates