SOME NEGLECTED SOCIAL COSTS OF GOVERNMENT SPENDING IN FARM PROGRAMS

Economic welfare analyses of farm programs typically assume that the direct social opportunity cost of subsidy payments is one dollar per dollar of government spending. Recent literature suggests that the marginal opportunity cost of a dollar of U.S. federal government spending is more likely to be in the range of $1.20 to $1.50. This implies that the net social costs of farm programs that involve government spending are significantly greater than the typical estimates. In addition, the normative efficiency ranking of alternative policies is sensitive to the marginal opportunity cost of government spending. © 1990 American Agricultural Economics Association.