The Impact of Set Aside Program on Rice Farmers’ Production Decision in Taiwan

These couple years, the set-aside policy
has been introduced as a major policy
scheme to process the structural adjustment
of the Taiwanese rice production to achieve
the so called supply-demand balance. Under
the set-aside policy, rice growers will get the
set-aside premium for each unit of land idled.
The intriguing questions are how to decide
the optimal level of set-aside premium? How
much the government should pay to achieve
the policy goal? The objective of this
research is to develop a theoretical model to
decide the optimal level of set-aside premium
that will provide enough incentive for
farmers to idle part of their land and achieve
the policy goal in the domestic rice industry.
The research steps are as follows. First, the
current set aside policy has been taken into
account in the rice farmer’s profit function.
Second, the theoretical model for the setaside
policy has been developed under the
assumption of expected utility maximization.
Third, a numerical method was employed to
evaluate the model followed by some
empirical analyses.