Centre for Development Economics
Department of Economics
Delhi School of Economics
ANNOUNCE A SEMINAR
Support prices, input subsidies and misallocation in Indian agriculture
by
Pubali Chakraborty
(Ashoka University)
with
Anand Chopra and Lalit Contractor
(Friday, May 12, 2023, 3:15 pm – 4:30 PM IST)
Venue: Amex Room
Abstract:-
In this paper, we study the implications of agricultural price support programs (which offer a minimum price to producers of supported crops) and input (electricity and fertilizer) price subsidies, which are common to several low-income economies, for occupational choices and quantify the resulting misallocation of talent across the agricultural and non-agricultural sectors. These programs can distort cropping choices, sorting across sectors, and contribute to low agricultural productivity. As agriculture comprises a large share of employment in many developing economies, low agricultural productivity can help explain the income differences between rich and poor economies. We formalize this argument by using an incomplete-markets general equilibrium model with two sectors and two cropping choices to understand the consequences of the various distortions to farm size and land use in the presence of agricultural risk. Unlike much of this literature, our analysis employs a dynamic model with agent heterogeneity by productivity and asset holdings to focus on specific distortions, viz., a minimum price that producers of certain crops can avail of or input price subsidies, in the context of India.