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Behavioural Drivers of Stocking Rate Decisions in Less Favoured Areas

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  • McCormack, Michele
  • O’Donoghue, Cathal
  • Loughrey, Jason

Abstract

In this paper we use a natural experiment to investigate the behavioural response of Irish Cattle farmers to historical policy incentives. In particular we are interested in the period 2001 – 2005 when Less Favoured Area payments were decoupled from production and other subsidy payments available to all farmers remained coupled. The decoupling of the Less Favoured Areas payment provides an exogenous source of variation that gives us unique opportunity for policy evaluation. Researchers rarely observe the effects of a policy change on those affected and those not affected since in almost all cases a policy change affects all. We adopt an ordinal Utility maximization consumer choice framework where individuals make decisions in relation to consumption and leisure. Under our model of utility maximization the expected market gross margin is positively associated with livestock intensity. We identify a non-linear relationship between direct coupled payments and livestock intensity which suggests that high payments incentivise farmers towards extensification. Using a Difference in Difference with propensity score matching we find that there were substantial differences in the behavioural responses of both groups. Farms where payments remained fully coupled adapted their stocking rate decisions in a way that reflects both learning and rationality more significantly than farms where part of their payment was decoupled.

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  • McCormack, Michele & O’Donoghue, Cathal & Loughrey, Jason, 2015. "Behavioural Drivers of Stocking Rate Decisions in Less Favoured Areas," 150th Seminar, October 22-23, 2015, Edinburgh, Scotland 212644, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaa150:212644
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    File URL: http://ageconsearch.umn.edu/record/212644/files/Behavioural%20Drivers%20of%20Stocking%20Rate%20Decisions%20in%20Less%20Favoured%20Areas.pdf
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    References listed on IDEAS

    as
    1. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-1282, November.
    2. Moffitt, Robert, 1990. "The Econometrics of Kinked Budget Constraints," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 119-139, Spring.
    3. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-1130, December.
    4. Breen, James P. & Hennessy, Thia C. & Thorne, Fiona S., 2005. "The effect of decoupling on the decision to produce: An Irish case study," Food Policy, Elsevier, vol. 30(2), pages 129-144, April.
    5. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 180-212, August.
    6. Henrik J. Kleven & Mazhar Waseem, 2013. "Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 669-723.
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    Keywords

    Agricultural and Food Policy;

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