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Production Effects of Direct Payments to Active Farmers: a Microeconomic Dynamic and Stochastic Analysis

  • Carpentier, Alain
  • Gohin, Alexandre
  • Heinzel, Christoph

For the 2014-2020 phase of the Common Agricultural Policy, the European Commission has the opportunity to reduce the leakage of public support to landowners and to better target it towards active farmers. Our purpose is to assess whether shifting the basis of direct payments from land towards active farmers will significantly alter agricultural production decisions. In a dynamic and stochastic microeconomic framework, we identify the impact of this shift on the farm household’s production and consumption decisions. In the dynamic setting the production impacts of direct payments are much higher than previously quantified, because the “long run” absolute risk aversion (associated with the value function) is lower than the “short run” one (associated with direct utility). In our dynamic setting, the impact profiles are opposed for initially poor and initially wealthy farmers, due to their different precautionary motives. Leakage to land owners is lower with an active-farmer than with a land subsidy, so that the production impact is higher.

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File URL: http://purl.umn.edu/122447
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Paper provided by European Association of Agricultural Economists in its series 123rd Seminar, February 23-24, 2012, Dublin, Ireland with number 122447.

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Date of creation: 24 Feb 2012
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Handle: RePEc:ags:eaa123:122447
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  11. 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.
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  16. Cao, Ruixuan & Carpentier, Alain & Gohin, Alexandre, 2011. "Measuring farmers’ risk aversion: the unknown properties of the value function," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114623, European Association of Agricultural Economists.
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