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Abstract

This paper provides estimates of the capitalization of the Single Payment Scheme (SPS) payment of the Common Agricultural Policy (CAP) on agricultural land rental rates. In so doing we address problems of unobserved heterogeneity and sample selection. As the 2013 CAP Reform calls for the harmonization of SPS payments, we estimate the implications of this mandate on agricultural land rental rates over time as Germany began introducing their Hybrid payment system in 2011. Using Bavarian farm level panel data we find strong capitalization effects that increase substantially in the most recent years of 2011 and 2012 after the introduction of the hybrid model. On average, the marginal effect on rental rates of an additional SPS euro is 38 cents, growing over time to 57 cents as regionalization of payments develops.

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