Evaluating the Effects of Decoupled Payments under Output and Price Uncertainty

Christina Kotakou () and Stelios Katranidis
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Christina Kotakou: Department of Economics, University of Macedonia

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: This paper examines the effects of decoupling policies on Greek cotton production under the hypothesis that producers face uncertainty about output price and quantity. Using our estimation results we simulate the effects on cotton production under four alternative policy scenarios: the ‘Old’ CAP regime (i.e. the policy practiced until 2005), the Mid Term Review regime, a fully decoupled policy regime and a free trade-no policy scenario. Our results indicate the decoupled payment will have two contradictious effects on risk aversion. Producers become less risk averse through the wealth effect but more risk averse because of the increased output variance. The overall result of these two effects depends on the degree of risk aversion by farmers. We found that when the degree of risk aversion is high the wealth effect is positive. However, in the case of low risk aversion, the wealth disappears in practice and as a result the decoupled payments become production neutral.

Keywords: Common Agricultural Policy; decoupling; uncertainty (search for similar items in EconPapers)
JEL-codes: D21 Q18 (search for similar items in EconPapers)
Date: 2010-04, Revised 2010-04
New Economics Papers: this item is included in nep-agr and nep-upt
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Working Paper: Evaluating the Effects of Decoupled Payments under Output and Price Uncertainty (2010)
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