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The Stranding Cost of Agricultural Subsidies under Climate-Transition and Biodiversity-Regulation Risks

Author

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  • Nguyen, Manh-Hung

Abstract

Anticipated carbon pricing and biodiversity regulation turn agricultural subsidies into stranded assets. In a continuous-time model of partially irreversible capital under Poisson policy arrival, calibrated to Danish dairy, the stranding loss is strictly convex in the capital overhang. Under full pass-through of CAP support into livestock capital, Common Agricultural Policy payments amplify the loss by a factor of 13.2; at a 25% pass-through the multiplier is 1.7. A second biodiversity risk contracts the capital target by 60 percent; expected stranding losses are super-modular in the subsidy pair in the risk-neutral benchmark and satisfy the same ranking numer-ically in the calibrated HJB, so joint reform dominates staged reform. The welfare-maximising subsidy is zero once the social cost of methane exceeds e 19/tCO2e.

Suggested Citation

  • Nguyen, Manh-Hung, 2026. "The Stranding Cost of Agricultural Subsidies under Climate-Transition and Biodiversity-Regulation Risks," TSE Working Papers 26-1746, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:131713
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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