Title: Decoupling and agricultural investment with disinvestment flexibility: a case study

Authors: Tiina Heikkinen

Addresses: Department of Computer Science, University of Helsinki, P.O. Box 68, Helsinki, FIN-00014, Finland; MTT Economic Research, Helsinki, Finland

Abstract: This paper studies the impact of changing national supports on agricultural investments, when taking into account disinvestment flexibility, focusing on a case study in Finnish agriculture. Numerical examples suggest that the reduction and decoupling of national support will cause a significant reduction in investments in the case study. However, assuming disinvestment flexibility, decoupling, if accompanied by fixed compensating payments, increases income stability and a higher level of investments can be achieved even with lower subsides. Increased income stability may also diminish the dynamic cost of income uncertainty. When decoupling the income support from production, it is important to ensure the stability of the compensating direct payments.

Keywords: rural investment; uncertainty; CAP reform; decoupling; dynamic programming; disinvestment flexibility; governance; agricultural investment; Finland; Common Agricultural Policy.

DOI: 10.1504/IJARGE.2009.026231

International Journal of Agricultural Resources, Governance and Ecology, 2009 Vol.8 No.2/3/4, pp.300 - 317

Published online: 29 May 2009 *

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