Do Decoupled Payments Stimulate Production?
Estimating the Effect on Program Crop Acreage Using Matching
Nigel Key and Michael J. Roberts*
Selected Paper at the Annual Meeting of the AAEA,
Orlando, Florida, July 27-29, 2008.
Abstract. This study uses matching to evaluate the effect of decoupled payments on the acreage
response of Iowa farmers who were in business in 1997 and 2002. Using farm-level panel data
from the U.S. Agricultural Census, we examine whether farmers receiving high levels of 1997
agricultural payments per acre had a greater increase in program crop acreage between 1997 and
2002 than farmers receiving low levels of payments. The panel data set allows for conditioning
current acreage on past individual acreage and operator characteristics. The large and exhaustive
sample allows for comparisons across similar farms. The matching methodology avoids
distributional and functional form assumptions about the relationship between the treatment and
outcome. Results are consistent with other recent empirical estimates that suggest small but
statistically significant effects of decoupled payments on production.
Key words: decoupled payments, supply response, government payments, program crops, trade
*Economic Research Service, U.S. Department of Agriculture. The views expressed are those of the
authors and do not necessarily correspond to the views or policies of ERS, or the U.S. Department of
Agriculture. Direct correspondence to: Nigel Key, firstname.lastname@example.org, (202) 694-5567.
Some agricultural policy reforms, including the 1996 Federal Agricultural Improvement and
Reform (FAIR) Act, seek to minimize production distortions by giving farmers lump-sum
payments that are not tied to production decisions or prices. The extent to which these lump-sum
or “decoupled” payments actually affect production has been a significant dispute among
academics and in recent World Trade Organi