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The impact of CAP policy in farmer's behavior – A modeling approach using the Cumulative Prospect Theory

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  • Coelho, Luís Alberto Godinho
  • Pires, Cesaltina Maria Pacheco
  • Dionísio, Andreia Teixeira
  • Serrão, Amílcar Joaquim da Conceição

Abstract

This paper proposes a modeling approach to evaluate the impact of economic policies on the decision maker's behavior. This modeling approach incorporates the agent's preferences, estimated through utility elicitation methods, into the objective function of a discrete sequential stochastic programming model that describes the uncertainties and the constraints faced by the decision maker. Our approach was applied to nine farmers of Portugal. The elicitation of the farmers’ preferences reveals that the Cumulative Prospect Theory is relevant to describe the farmers’ behavior under risk. Our programming model was used to evaluate the impact of the Common Agricultural Policy with partial and full decoupling of subsidies.

Suggested Citation

  • Coelho, Luís Alberto Godinho & Pires, Cesaltina Maria Pacheco & Dionísio, Andreia Teixeira & Serrão, Amílcar Joaquim da Conceição, 2012. "The impact of CAP policy in farmer's behavior – A modeling approach using the Cumulative Prospect Theory," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 81-98.
  • Handle: RePEc:eee:jpolmo:v:34:y:2012:i:1:p:81-98 DOI: 10.1016/j.jpolmod.2011.03.009
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    References listed on IDEAS

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    Cited by:

    1. Luis A.G. Coelho, 2014. "Portfolio Selection Optimization under Cumulative Prospect Theory – a parameter sensibility analysis," CEFAGE-UE Working Papers 2014_06, University of Evora, CEFAGE-UE (Portugal).
    2. Bougherara, Douadia & Piet, Laurent, 2014. "The Impact of Farmers’ Risk Preferences on the Design of an Individual Yield Crop Insurance," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 183082, European Association of Agricultural Economists.

    More about this item

    Keywords

    Cumulative Prospect Theory; Common Agricultural Policy; Discrete sequential stochastic programming model; Utility Theory;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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