Eighteenth International Conference on Environmental, Cultural, Economic & Social Sustainability

Abstract

Agricultural livestock operations benefit from direct and indirect subsidies at the expense of increasing environmental and public health externalities and decreasing animal welfare conditions, resulting in artificially low prices and increased meat consumption. In this study, we develop a computable markov-perfect partial-equilibrium model of US cattle farms, where farms are allowed to enter, exit and grow in size, and choose between two production techniques: responsible farming (e.g., cow-calf farming from cradle to slaughterhouses without confinement) vs irresponsible farming (e.g., farms sending their herd to CAFOs). Using this model, we endogenously analyze the impacts of direct and indirect subsidies on equilibrium prices and output, investment and exit decision and resulting market shares of responsible vs. irresponsible farms. To our knowledge, we provide the first computable model with full scale industry dynamics to quantify the impact of removing direct and indirect subsidies on the equilibrium outcomes.