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Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty

  • Arathi Bhaskar
  • John C. Beghin

We analyze the coupling effect of expectations about base acreage and yield updating in future farm policy on production decisions in the presence of price, yield, and policy uncertainty for a risk-averse farmer producing a single crop. The farmer receives market revenue and government payments. Using stochastic dynamic programming, optimum decisions under present value calculations positively link current acreage and fertilizer decisions to future government payments through expected updates of base acreage and yield in the future regime. Moving from a zero probability of updating to a probability of one increases optimum acreage and yield by 6.25% and 0.134%, respectively. Copyright 2010, Oxford University Press.

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Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 92 (2010)
Issue (Month): 3 ()
Pages: 849-858

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Handle: RePEc:oup:ajagec:v:92:y:2010:i:3:p:849-858
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  1. David A. Hennessy & Bruce A. Babcock & Dermot J. Hayes, 1995. "Budgetary and Resource Allocation Effects of Revenue Assurance," Center for Agricultural and Rural Development (CARD) Publications 95-wp130, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  2. Torre Ugarte, Daniel de la & Sanford, Scott & Skinner, Robert A. & Westcott, Paul C. & Lin, William W., 2000. "Supply Response Under The 1996 Farm Act And Implications For The U.S. Field Crops Sector," Technical Bulletins 33568, United States Department of Agriculture, Economic Research Service.
  3. Bruce A. Babcock & Joseph A. Herriges, 1994. "Input Demand Under Yield and Revenue Insurance," Center for Agricultural and Rural Development (CARD) Publications 94-wp127, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  4. Bruce A. Babcock & Chad E. Hart, 2005. "How Much "Safety" Is Available under the U.S. Proposal to the WTO?," Center for Agricultural and Rural Development (CARD) Publications 05-bp48, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  5. Michael J. Roberts & Barrett Kirwan & Jeffrey Hopkins, 2003. "The Incidence of Government Program Payments on Agricultural Land Rents: The Challenges of Identification," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 762-769.
  6. Barry K. Goodwin & Ashok K. Mishra, 2006. "Are “Decoupled” Farm Program Payments Really Decoupled? An Empirical Evaluation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 73-89.
  7. David A. Hennessy, 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 46-57.
  8. Christopher R. McIntosh & Jason F. Shogren & Erik Dohlman, 2007. "Supply Response to Countercyclical Payments and Base Acre Updating under Uncertainty: An Experimental Study," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 1046-1057.
  9. Bhaskar, Arathi & Beghin, John C., 2007. "How Coupled Are Decoupled Farm Payments? A Review of the Evidence," Staff General Research Papers 12841, Iowa State University, Department of Economics.
  10. Paolo Sckokai & Daniele Moro, 2006. "Modeling the Reforms of the Common Agricultural Policy for Arable Crops under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 43-56.
  11. Barry K. Goodwin & Ashok K. Mishra & Fran�ois N. Ortalo-Magné, 2003. "What's Wrong with Our Models of Agricultural Land Values?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 744-752.
  12. Joe Dewbre, 2006. "The Impact of Coupled and Decoupled Government Subsidies on Off-Farm Labor Participation of U.S. Farm Operators," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 393-408.
  13. Roe, Terry & Somwaru, Agapi & Diao, Xinshen, 2002. "Do direct payments have intertemporal effects on U.S. agriculture?," TMD discussion papers 104, International Food Policy Research Institute (IFPRI).
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