Output Price Subsidies in a Stochastic World

This article studies the comparative statics of output subsidies for firms, with monotonic preferences over costs and returns, that face price and production uncertainty. The modeling of deficiency payments, support-price schemes, and stochastic supply shifts in a state-space framework is discussed. It is shown how these notions can be used, via a simple application of Shephard's lemma, to analyze input-demand shifts once comparative-static results for supply are available. A range of comparative-static results for supply are then developed and discussed.