We examine the distortionary effects of agricultural policy on farm productivity by examining the response of U.S. tobacco farmers' productivity to the quota buyout of 2004. We focus on the impact of distortionary policy, i.e., the tobacco quota, by decomposing aggregate productivity growth into the contribution of farm-level productivity growth and the contribution of reallocation of resources among tobacco growers. We find that the aggregate productivity of Kentucky tobacco farms grew44%between 2002 and 2007. The elimination of quota rental costs and reallocation of resources, including entry and exit, accounted for most of the post-buyout productivity growth.
- Tobacco; Quotas; Aggregate Productivity Growth; Reallocation
ASJC Scopus subject areas
- Agricultural and Biological Sciences (miscellaneous)
- Economics and Econometrics