A Unique Measure of the Welfare Effects of Price Support Programs for Corn on Family-Farm Households by Size Distribution

Abstract

On-and off-farm employment offamily farm members has been a permanent phenomenum in U.S. agriculture. In this paper, a family-farm model is extended to include both on-and off-farm labor supply decisions for farm-households in the U.S. com sector. A unique empirical measure of economic welfare is developed to analyze the effects of government price support programs. Traditional welfare analysis of farm programs ignores on-and off-farm employment decisions by focusing only on 'producer surplus' at the aggregate sector level. We determine that the appropriate measure of welfare for the farm-household includes the 'laborer's surplus'. Theoretical results are derived to show that conventional analysis overstates the benefits of farm price supports because of the tradeoff between producer and laborer's surpluses. Empirical simulations indicate that the laborer's surplus is a significant share oftotal farm-household welfare, especially for smaller farm sizes that comprise the majority of com farmers in the United States. Results also show that the government programs may have been misdirected if the goal has been to improve the farm income situation because the few large farms gain much more in aggregate than smaller farms.