This article examines the impact of government-sponsored enterprise status for the Farm Credit System on allocative efficiency in agricultural credit markets. The Farm Credit System was established originally to overcome market failures in these markets and to provide long-term funding at rates lower than private credit sources. Using a supply and demand model and an options model, the impact of subsidized interest rates is discussed. My results show that the default risk premium in interest rates is transferred from agricultural borrowers to taxpayers. There is evidence of deadweight losses and market distortions due to government-sponsored enterprise status for the Farm Credit System.
Embryo transfer technology has been used as a laboratory technique since the late 1800’s, but it was not used commercially until recently. The advent of exotic breeds of cattle in the 1970’s provided the economic incentives for application of the technology for commercial purposes. Previous economic studies have indicated that the cost per calf may be as high as $2,414 or as low as $200 as reported in a popular source. Van Vleck has stated that increased milk production will not pay for the extra costs of embryo transfer. This conclusion was based on the net present value of the additional milk after taking into consideration the genetic potential of the dam and sire. Another study estimated that for milk receipts alone to pay for the added cost, the cost of embryo transfer would have to drop to below $200 per pregnancy.
Predictions for the future of embryo transfer range from optimistic to the cautious. The cautious note that the basic motivation for present use of the technology is not increased milk production, but tax incentive exploitation by livestock breeders and investors. None of these previous studies have presented the financial feasibility along with the tax benefits.
Tax incentives from embryo transfer are very attractive and often entice investors in the high marginal tax brackets into the industry. Investors as well as livestock breeders can take advantage of investment tax credit, depreciation, capital gains and can expense the costs of embryo transfer under the Internal Revenue Tax Codes.
The objectives of this paper are to: determine the feasibility of embryo transfer including tax benefits and to determine by sensitivity analysis some conditions under which it becomes feasible.
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