Economics at your fingertips  

Investment in farming under uncertainty and decoupled support: a real options approach

Luca Di Corato () and Dimitrios Zormpas ()
Additional contact information
Dimitrios Zormpas: Department of Mathematics, University of Padova

No 2019:06, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: Under the current version of the Common Agricultural Policy (CAP), payments to EU farmers are decoupled from the production of agricultural commodities. In fact, farmers qualify for CAP support as soon as their land is maintained in good agricultural and environmental condition. In this paper, we study how decoupled payments influence the decision to invest in farming. We show that decoupling is implicitly providing a costless hedge against volatile farming profits. Consequently, a higher decoupled payment leads the potential farmer to hasten its investment but also results in a farm with lower productive capacity.

Keywords: Decoupling; Real Options; Land Development; Capital Intensity; Passive Farming (search for similar items in EconPapers)
JEL-codes: C61 Q15 R14 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2019
New Economics Papers: this item is included in nep-agr and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... to_zormpas_06_19.pdf First version, anno (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Venice "Ca' Foscari" Contact information at EDIRC.
Bibliographic data for series maintained by Geraldine Ludbrook ().

Page updated 2020-10-10
Handle: RePEc:ven:wpaper:2019:06