This paper examines the effects of aging and income subsidies on farm efficiency in Korea by utilizing the Korean Farm Household Economic Survey from 2008 to 2015. A stochastic frontier model with a non-monotonic assumption on the effect of efficiency factors is implemented to reflect a super aging and less developed production structure in Korean agriculture. This study finds continuously decreasing farm efficiency with age, which contradicts the commonly assumed inverted-U relationship between age and productivity. Especially, we find that labor is the most important factor to explain recent farm efficiency losses in Korea. Furthermore, this paper finds that the Korean income subsidy has a negative effect on farm efficiency. Our results provide two policy implications for the government of Korea. First, even though the “Returns to the Farm and Rural program” is appropriate, Korea should modify the program to encourage more young people to participate this program rather than old people, in order to attain the sustainable development of the agricultural sector. Second, a policy maker in Korea should consider a coupled subsidy that is directly related to farm production rather than a decoupled subsidy, regardless of the lower efficiency of the coupled subsidy in achieving agricultural development.

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Published in Sustainability, v. 10, issue 7, 2137, p. 1-15.

© 2018 by the authors. Licensee MDPI, Basel, Switzerland.

This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).

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