The stranding cost of agricultural subsidies under climate-transition and biodiversity-regulation risks

Manh-Hung Nguyen
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Manh-Hung Nguyen: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: Anticipated carbon pricing and biodiversity regulation turn agricultural subsidies into stranded assets. In a continuous-time model of partially irreversible capital under Poisson policy arrival, calibrated to Danish dairy, the stranding loss is strictly convex in the capital overhang. Under full pass-through of CAP support into livestock capital, Common Agricultural Policy payments amplify the loss by a factor of 13.2; at a 25% pass-through the multiplier is 1.7. A second biodiversity risk contracts the capital target by 60 percent; expected stranding losses are super-modular in the subsidy pair in the risk-neutral benchmark and satisfy the same ranking numer-ically in the calibrated HJB, so joint reform dominates staged reform. The welfare-maximising subsidy is zero once the social cost of methane exceeds € 19/tCO2e.

Keywords: Stranded assets; Carbon taxation; Biodiversity regulation; Subsidy design; Policy risk; Irreversible investment (search for similar items in EconPapers)
Date: 2026-05-13
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