Evaluating a Voluntary Set-Aside Program with Price Risk Management Incentives

An agricultural policy option where individual producers’ support prices increase with the proportion of land set-aside is evaluated. A theoretical framework is presented and a stochastic simulation model is developed to generate estimates of the impacts of the policy on aggregate and regional distribution of government payments and farm-level income. Results indicate that significant land idling occurs for five major program crops, particularly in less productive regions. The program supports farm income in each region approximately equally. However, more government payments are used to support less efficient regions while more efficient regions receive greater returns from the market.