When Decoupled Isn't Decoupled: Price Risk, Wealth Effects, and Behavioral Responses in a Nonseparable Household Model

Michail Tsagris () and Vangelis Tzouvelekas ()
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Vangelis Tzouvelekas: Department of Economics, University of Crete, Greece

No 2605, Working Papers from University of Crete, Department of Economics

Abstract: We develop a nonseparable agricultural household model under output price risk to examine whether nominally decoupled income transfers are behaviorally neutral. In the presence of market imperfections and uncertainty, we show that such payments affect production decisions through endogenous wealth, risk, and technology channels. Using a dual certainty-equivalent representation, we derive analytical expressions that characterize how transfers propagate across production and consumption decisions. The framework identifies three mechanisms, an income channel, a wealth-risk channel, and a liquidity/technology channel, through which decoupled payments become partially decoupled. An empirical application to farm-level data from Greece quantifies these effects and shows that decoupled payments generate nontrivial responses in input use, labor allocation, and welfare. The results provide a unified explanation for the observed production effects of decoupled policies and inform the design of ag

Keywords: Decoupled payments; Nonseparable household models; Price risk; Behavioral coupling (search for similar items in EconPapers)
JEL-codes: C51 D13 D81 Q12 Q18 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2026-05-23
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