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Investing in farming under uncertainty and redistributive support

Author

Listed:
  • Luca Di Corato

    (Universit`a Ca’ Foscari Venezia)

  • Dimitrios Zormpas

    (University of Macedonia)

Abstract

We develop a real-options model to assess how the post-2023 Common Agricultural Policy (CAP) income support scheme influences landholders’ investment behavior. The reformed CAP increased per-hectare support for small farms through redistributive payments linked to “first hectares†. Small farms respond to higher payments with more aggressive investment strategies. Instead large farms exhibit a nuanced response since higher basic payments encourage investments, but greater redistributive payments lead to more conservative behavior. These dynamics create a “pooling effect†around the farm-size threshold distinguishing large from small farms. Our analysis contributes to the broader debate regarding land value capitalization and CAP’s fiscal implications.

Suggested Citation

  • Luca Di Corato & Dimitrios Zormpas, 2026. "Investing in farming under uncertainty and redistributive support," Discussion Paper Series 2026_06, Department of Economics, University of Macedonia, revised Jun 2026.
    • Handle: RePEc:mcd:mcddps:2026_06
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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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