@article{Key:9831,
      recid = {9831},
      author = {Key, Nigel D. and Roberts, Michael J.},
      title = {NONPECUNIARY BENEFITS TO FARMING AND DECOUPLED PAYMENTS},
      address = {2007},
      number = {381-2016-22199},
      series = {Selected Paper #173574},
      pages = {24},
      year = {2007},
      abstract = {The first part of this paper presents a simple labor  supply and production model wherein farmers with  diminishing marginal utility of income derive nonpecuniary  benefits from farming.  We use the model to show how  lump-sum or 'decoupled' government payments could have  positive and substantial effects on the supply of  agricultural products.  The result is simple and intuitive:   payments allow those who enjoy farming to continue farming  while maintaining a reasonably high living standard.   Without payments, a lower living standard leads to higher  marginal utility of income, making higher off-farm wages  more desirable than lower on-farm wages plus non-pecuniary  benefits from farming.  Farmers respond to a reduction in  payments by shifting their labor off-farm or exiting  farming.  This effect on labor supply and production is  potentially much larger than effects predicted by earlier  theoretical models that rely on utility with declining  absolute risk aversion. The second part of this paper  estimates the hourly nonpecuniary benefits to farming, for  farms where the operator or spouse works off-farm, by  comparing returns to household labor on-farm and off-farm.   Results indicate substantial nonpecuniary benefits to  farming.  The empirical findings support a necessary  (though not sufficient) condition for lump-sum payments  having a substantial influence on production via an income  effect.},
      url = {http://ageconsearch.umn.edu/record/9831},
      doi = {https://doi.org/10.22004/ag.econ.9831},
}