Title

Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty

Campus Units

Economics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

2010

Journal or Book Title

American Journal of Agricultural Economics

Volume

92

Issue

3

First Page or Article ID Number

849

Last Page

858

DOI

10.1093/ajae/aap009

Abstract

We analyze the coupling effect of expectations about base acreage and yield updating in future farm policy on production decisions in the presence of price, yield, and policy uncertainty for a risk-averse farmer producing a single crop. The farmer receives market revenue and government payments. Using stochastic dynamic programming, optimum decisions under present value calculations positively link current acreage and fertilizer decisions to future government payments through expected updates of base acreage and yield in the future regime. Moving from a zero probability of updating to a probability of one increases optimum acreage and yield by 6.25% and 0.134%, respectively.

JEL Classification

Q15, Q18

Comments

This is a working paper of an article from American Journal of Agricultural Economics 92 (2010): 849, doi: 10.1093/ajae/aap009