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The Acreage and Borrowing Effects ok Direct Payments Under Uncertainty: A Simulation

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  • Maria Joana Girante

    ()
    (Universidade do Minho - NIPE)

  • Barry K. Goodwin

    ()
    (North Carolina State University - Dept. Agricultural and Resource Economics, Raleigh, NC, U.S.A)

Abstract

We use simulation methods in an expected utility maximization framework to analyze a farmer`s optimal resource allocation in the presence of government payments, decoupled and not. This framework is extended to incorporate the optimal choice of investment levels in the presence of credit constraints. Further extensions include a wealth-dependent interest rate and decreasing marginal yields. We find decoupled payments affect the optimal choices of the credit - constrained farmer though a collateral - enhancement effect, so they do distort production. The 2005 proposal by Senators Grasseley, Dorgan, Hagel, and Johnson to tighten limits on commodity payments is not found to affect payments of the typical Kansas farmer.

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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 14/2009.

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Date of creation: 2009
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Handle: RePEc:nip:nipewp:14/2009

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
Phone: +351-253604510 ext 5532
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Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
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Keywords: decoupled payments; credit constraints.;

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  1. Miller, J. Corey & Coble, Keith H. & Vergara, Oscar & Broyles, Meredith E., 2003. "Potential Impacts Of Changes To Government Payment Limits For Mississippi Farms," Research reports 15797, Mississippi State University, Department of Agricultural Economics.
  2. Barry K. Goodwin & Ashok K. Mishra, 2005. "Another Look at Decoupling: Additional Evidence on the Production Effects of Direct Payments," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(5), pages 1200-1210.
  3. Hennessy, David A., 1998. "The Production Effects of Agricultural Income Support Policies Under Uncertainty," Staff General Research Papers 1207, Iowa State University, Department of Economics.
  4. repec:ags:ajaeap:43894 is not listed on IDEAS
  5. Vitor A. Ozaki & Sujit K. Ghosh & Barry K. Goodwin & Ricardo Shirota, 2008. "Spatio-Temporal Modeling of Agricultural Yield Data with an Application to Pricing Crop Insurance Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 951-961.
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