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Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty

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  • Bhaskar, Arathi
  • Beghin, John

Abstract

We analyze the coupling effect of expectations about base acreage and yield updating in future farm policy on production decisions in the presence of price, yield, and policy uncertainty for a risk-averse farmer producing a single crop. The farmer receives market revenue and government payments. Using stochastic dynamic programming, optimum decisions under present value calculations positively link current acreage and fertilizer decisions to future government payments through expected updates of base acreage and yield in the future regime. Moving from a zero probability of updating to a probability of one increases optimum acreage and yield by 6.25% and 0.134%, respectively.

Suggested Citation

  • Bhaskar, Arathi & Beghin, John, 2010. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," ISU General Staff Papers 201001010800001224, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:201001010800001224
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    14. Bhaskar, Arathi & Beghin, John C., 2007. "How Coupled are Decoupled Farm Payments? A Review of Coupling Mechanisms and the Evidence," Working Papers 7347, Iowa State University, Department of Economics.
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