Evaluating the Effects of Decoupled Payments under Output and Price Uncertainty

This paper examines the effects of decoupling policies on Greek cotton production under the hypothesis that producers face uncertainty about output price and quantity. Using our estimation results we simulate the effects on cotton production under four alternative policy scenarios: the ‘Old’ CAP regime (i.e. the policy practiced until 2005), the Mid-Term Review regime, a fully decoupled policy regime and a free trade-no policy scenario. Our results indicate the decoupled payment will have two contradictious effects on risk aversion. Producers become less risk averse through the wealth effect but more risk averse because of the increased output variance. The overall result of these two effects depends on the degree of risk aversion by farmers. We found that when the degree of risk aversion is high the wealth effect is positive. However, in the case of low risk aversion and a wealth effect equal to zero the decoupled payments become production neutral.


Issue Date:
Mar 29 2010
Publication Type:
Conference Paper/ Presentation
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/91753
PURL Identifier:
http://purl.umn.edu/91753
Total Pages:
20
JEL Codes:
D21; Q18




 Record created 2017-04-01, last modified 2019-08-26

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