Friday, September 21, 2007

How Many Variables Make a Good Program?

Had a comment on my post about the Durbin-Brown proposal for a state revenue counter-cyclical protection program. Essentially he said that insurance proposals on a group level, as opposed to the individual farm level, hadn't been popular.

That spurred me to thinking (always dangerous). In the old deficiency payment program, we had two variables--the national price received by farmers and the acreage for payment, the other "variables" were known to the farmer when he or she signed up. (Notably the acreage for payment was under the farmer's control.) In the proposed program, it sounds as if we have four (state harvested yield, state price received, farm acres for payment, farm harvested production). Of course, each variable interacts with others, so you have like 16 possible outcomes for a farmer looking ahead before planting. Assume the full planted acreage, the farm production could be low or high, the state price low or high, and the state yield low or high.

That makes the proposal complex, and more unlikely to pass. The advantage of a program that is tailored to the farm is that more of the variables are under the farmer's control. And, as Tyler Cowen says in his new book on the Inner Economist, people like to be in control. Certainly I do.

(Side note--I think the wheat growers are opposing the program, in part because it might count as "amber" in the WTO scoring. Don't ask me the definition, but "amber" is bad.)

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