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When Decoupled Isn't Decoupled: Price Risk, Wealth Effects, and Behavioral Responses in a Nonseparable Household Model

Author

Listed:
  • Michail Tsagris

  • Vangelis Tzouvelekas

    (Department of Economics, University of Crete, Greece)

Abstract

We develop a nonseparable agricultural household model under output price risk to examine whether nominally decoupled income transfers are behaviorally neutral. In the presence of market imperfections and uncertainty, we show that such payments affect production decisions through endogenous wealth, risk, and technology channels. Using a dual certainty-equivalent representation, we derive analytical expressions that characterize how transfers propagate across production and consumption decisions. The framework identifies three mechanisms, an income channel, a wealth-risk channel, and a liquidity/technology channel, through which decoupled payments become partially decoupled. An empirical application to farm-level data from Greece quantifies these effects and shows that decoupled payments generate nontrivial responses in input use, labor allocation, and welfare. The results provide a unified explanation for the observed production effects of decoupled policies and inform the design of ag

Suggested Citation

  • Michail Tsagris & Vangelis Tzouvelekas, 2026. "When Decoupled Isn't Decoupled: Price Risk, Wealth Effects, and Behavioral Responses in a Nonseparable Household Model," Working Papers 2605, University of Crete, Department of Economics.
    • Handle: RePEc:crt:wpaper:2605
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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