Modeling of the subsidy policy in fresh produce wholesale markets under yield uncertainty

Agricultural subsidies are crucial for stabilizing supply and price in fresh produce wholesale markets. In particular, fresh produce suffers the risk of yield uncertainty in the upstream origin market, which may cause supply and price fluctuations in the downstream wholesale market. By developing a game-theoretical framework, this paper analyzes the effectiveness of the transaction fee subsidy in wholesale markets under yield uncertainty. Our result shows that the subsidy policy can increase supply and reduce prices but may aggravate price fluctuations by inducing a larger supply scale in the wholesale market. The numerical analysis indicates that the subsidy policy performs a low efficiency in improving consumer surplus but high efficiency in social welfare. It may also engender a net economic benefit to induce a win–win outcome on consumer welfare and market profitability. This research reveals the possibility of balancing social and economic benefits through government subsidy policies.