Subsidy Incidence in Factor Markets: An Experimental Approach
2017
Nagler, Amy M. | Menkhaus, Dale J. | Bastian, Christopher T. | Ehmke, Mariah D. | Coatney, Kalyn T.
Laboratory market experiments are used to estimate the incidence of a stylized subsidy infactor market negotiations with university student and agricultural professional subjects. Inseparate sessions with both groups, prices converged approximately four and a half tokenshigher when a 20-token per-unit subsidy was paid to buyers; this equates to 44% of thepredicted 10-token split. A proportional market incentive treatment clarifies this subsidyeffect. Discrepancies between predicted and observed incidence are similar to previousempirical estimates of subsidy incidence in agricultural land rental markets. A behavioralanomaly as well as buyer–buyer market competition may contribute to experimental results.
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