Government Interventions to Promote Agricultural Innovation
We investigate the effectiveness of a number of policy instruments, i.e., taxes and subsidies, in terms of their impact on the adoption of innovative production methods, producers’ profits, consumer surplus, and return on government expenditure. Our findings indicate that using only taxes encourages experimentation with new production methods but decreases social welfare. Utilizing only subsidies outperforms policies that involve both taxes and subsidies in achieving higher social welfare but the converse is true in achieving a higher experimentation rate. We illustrate the applicability of our insights by conducting a numerical study using data on conventional and organic egg production in Denmark.