Agricultural policy uncertainty and farm level adjustments—the case of direct payments and incentives for farmland investment
Author: Lagerkvist, Carl Johan
Source: European Review of Agricultural Economics, Volume 32, Number 1, March 2005 , pp. 1-23(23)
Publisher: Oxford University Press
Abstract:A dynamic stochastic business-level land valuation model is derived to analyse how agricultural policy uncertainty regarding reform of the CAP area payment system affects farmland investment incentives. Subjective probability beliefs of Swedish farmers were collected in a survey and used to illustrate the implications of the model. The results show the working of adjustments in current farmland investment incentives triggered by the announcement of agricultural policy programmes linked to farmland. Lack of complete information causes inefficiency by inducing farm operators to over-invest before the reform date if they expect a reform that is likely to reduce their area payment. Policy uncertainty has surprisingly volatile and ambiguous effects on farmland investment incentives.
Document Type: Research Article
Publication date: 2005-03-01
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