Government subsidy policy for green and efficient raw materials considering farmer heterogeneity

To protect soil quality for sustainable development and raise farmers' incomes, agricultural firms are increasingly developing green and efficient raw materials (GRMs) that can improve crop yields and reduce soil damage compared to TRMs. However, farmers have heterogeneity in both the trust in agricultural information and sustainable development attitudes, leading to underestimation of the value of GRMs. This paper explores the optimal subsidy policy of the government to promote GRMs considering the effect of farmer heterogeneity using a government-firm-farmer Stackelberg game. Our analysis reveals that the government should subsidize both farmers and the GRM firm when the GRMs' effectiveness is not high enough; otherwise, it is more effective to subsidize farmers but not the GRM firm. Such a government subsidy policy can bring a win-win-win outcome for farmers, the GRM firm, and social welfare under certain conditions. Although higher farmers' trust in agricultural information or sustainable development attitudes can increase their subjective willingness to adopt GRMs, counterintuitively, the total farmer surplus will decrease because in this situation: (1) the government will reduce the subsidy to farmers or (2) the GRM firm will increase the GRM price. In addition, compared with considering two-dimensional heterogeneity of farmers, considering only one-dimensional heterogeneity or no heterogeneity of farmers will cause the government subsidy to deviate from the goal of promoting GRMs, resulting in a 59.3% reduction in GRM market demand, a 17.3% decrease in the profit of GRM firm, and possibly even making the GRM firm die out.

Automated summary

In order to protect soil quality and increase farmers' incomes, agricultural firms have developed green and efficient raw materials (GRMs) that can improve crop yields and reduce soil damage. However, farmers' trust in agricultural information and sustainable development attitudes vary, leading to an underestimation of the value of GRMs. This paper explores the optimal subsidy policy of the government to promote GRMs, taking into account farmer heterogeneity. The analysis suggests that the government should subsidize both farmers and the GRM firm when the effectiveness of GRMs is not high enough. However, if the effectiveness is sufficient, it is more effective to only subsidize farmers. This subsidy policy can lead to a win-win-win outcome for farmers, the GRM firm, and social welfare under certain conditions.