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Is Agricultural Policy Decoupling against Human Nature? Experimental Evidence of Fairness Expectations’ Contributions to Payment Incidence

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  • Ehmke, Mariah D.
  • Nagler, Amy M.
  • Menkhaus, Dale J.
  • Bastian, Christopher T.
  • Young, C. Edwin

Abstract

The objective of this research is to measure individuals’ fairness expectations and relate them to their market behavior in a private-negotiation institution. By doing this, we may inform model parameterization of field data and increase understanding of payment incidence causation. We hypothesize agents will change both their market and UG behavior when the tenant/proposer receives a subsidy following a successful negotiation. We also hypothesize that agents’ market behavior does relate to their fairness expectations in the UG. Two economic experiments were developed to test our hypotheses, a market and an ultimatum bargaining game experiment. We recruited 106 undergraduate students and conducted the experiments in an experimental laboratory using a computer based market mechanism. Our findings suggest fairness expectations need to be considered as a possible constraint on agents’ profit maximization behavior in land markets. The experimental evidence indicates market sellers or landlords demand higher land rental prices when tenants receive per-unit subsidies. Their ability to obtain a higher price appears to be more formidable in markets with limited matching opportunities. We conclude fairness expectations may constrain individuals’ profit-maximization behavior in the land market and, in turn, affect payment incidence in this market.

Suggested Citation

  • Ehmke, Mariah D. & Nagler, Amy M. & Menkhaus, Dale J. & Bastian, Christopher T. & Young, C. Edwin, 2010. "Is Agricultural Policy Decoupling against Human Nature? Experimental Evidence of Fairness Expectations’ Contributions to Payment Incidence," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61645, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea10:61645
    DOI: 10.22004/ag.econ.61645
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    References listed on IDEAS

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    1. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
    2. Barry K. Goodwin & Ashok K. Mishra, 2006. "Are “Decoupled” Farm Program Payments Really Decoupled? An Empirical Evaluation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 73-89.
    3. Roe, Terry & Somwaru, Agapi & Diao, Xinshen, 2002. "Do direct payments have intertemporal effects on U.S. agriculture?," TMD discussion papers 104, International Food Policy Research Institute (IFPRI).
    4. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    5. Christopher T. Bastian & Lance B. Gittings, 2007. "The Matching Problem (and Inventories) in Private Negotiation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 1073-1084.
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    Keywords

    Agricultural and Food Policy;

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