Storage Subsidies and Supply Response
E. Kwan Choi, William H. Meyers
December 1989 [89-WP 47]
Choi, E.K. and W.H. Meyers. 1989. "Storage Subsidies and Supply Response." Working paper 89-WP 47. Center for Agricultural and Rural Development, Iowa State University.
This paper investigates the supply response to a storage subsidy. From the ex post sales decision problem we derive the reservation price below which all risk averse farmers hold some inventory. While sales and storage decisions are made ex post, production decisions are made ex ante before the current market price is known. Storage subsidies are shown to encourage risk averse as well as risk neutral farmers to expand output. The analysis implies that storage subsidies should be incorporated in estimating supply response.