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Abstract

In the last few years, efforts have been made to modify agricultural support policies in order to minimize the distortive impacts on product level and on international trade. Emphasis has been given to decoupled payments, considered neutral to current production decisions. The main argument is that such payments do not influence the crop marginal returns because they are not based on current production. This article shows, however, that current production decisions are influenced by decoupled payments through direct impacts on risk perception by farmers. These effects, classified as income effect and insurance effect, stimulate the increase in planted area and, therefore, have impacts on production and price levels.

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