Decoupled farm payments & the role of base updating under uncertainty

Thumbnail Image
Date
2007-01-01
Authors
Bhaskar, Arathi
Beghin, John
Major Professor
Advisor
Committee Member
Journal Title
Journal ISSN
Volume Title
Publisher
Authors
Person
Beghin, John
Retired Faculty
Research Projects
Organizational Units
Organizational Unit
Journal Issue
Is Version Of
Versions
Series
Department
Economics
Abstract

In the context of the U.S farm policy, this paper analyzes the effect that expectations about base updating in future policies have on a farmer’s acreage decision in the presence of price, yield and policy uncertainty. We consider a risk neutral farmer producing a single crop whose income consists of market revenue and government payments. We consider two policy regimes. Decisions made in the current policy regime are linked to government payments in the future policy regime through the possibility of a base update in the future regime. There is policy uncertainty about the possibility of a base update being allowed in the future. We combine stochastic dynamic programming with present value calculations to link current acreage decisions to future program payments. The average optimal planted acreage is weakly increasing in the subjective probability of the future base update. The maximum percentage increase in the average optimal planted acreage is 6%.

Comments
Description
Keywords
Citation
DOI
Source
Copyright
Collections