Testing for Moral Hazard and Ranking Farms by Their Inclination to Collect Crop Damage Compensations

This paper tests for the extent of moral hazard problem within a Crop Damage Compensation (CDC) program that is similar to traditional multi peril crop insurances but is publicly funded and openly accessible for all farmers in Finland. We further estimate the potential of using the observed farmer and farm characteristics in ranking and classifying farms according to their incidence towards losses when they are protected. The data are the claimed and granted indemnity payments for each farm over the fifteen year period of 1995-2009. These data are complemented by data on total farm population in 2005. The data suggest that most of the farmers (60%) have not made any claims in the CDC program over the 15 year period. Those farms that claimed compensation did so typically either once or twice within the 15 year period. Nevertheless, a substantial number of farmers have claimed and also granted indemnity payments more regularly than can be justified by the exogenous (aggregate level) yield distributions. Based on the logit models, farmers and farms with certain observed characteristics are more inclined to the losses than the others. In general presence of animals declines the probability of crop damage. However, the existence of different animals on the farm classifies the farms by their inclination to collect crop damage compensations. In addition, the fixed municipality effects are significant indicating that the persons in charge for appraising the losses implement different standardsFarm Management, Risk and Uncertainty,

Land Improvements Under Land Tenure Insecurity: The Case of Liming in Finland

This article solves and characterizes optimal decision rules to invest in irreversible land improvements conditional on land tenure insecurity. Economic model is a normative dynamic programming model with known parameters for the one period returns and transition equations. The optimal decision rules for liming are solved numerically, conditional on alternative scenarios on the likelihood that the lease contract and, thus, farmer access to land is either renewed or expired. The model parameters represent Finnish soil quality and production conditions. The results suggest that irreversible liming decreases quickly and the yields decline gradually, when the farmer is confronted with land tenure insecurity caused by uncertain renewal of the lease contract. The results are confirmed via empirical results.Land tenure, Liming, Land Economics/Use,

Dynamics of Phosphorus Fertilization and Liming Under Land Tenure Insecurity

This article solves and characterizes optimal decision rules to invest in irreversible land improvements conditional on land tenure insecurity. Economic model is a normative dynamic programming model with known parameter for the one period returns and transition equations. The decision rules are solved numerically conditional on alternative scenarios on the likelihood that the lease contract and, thus, farmer access to land is either renewed or expires. The model parameters represent Finnish soil quality and production conditions. The results suggest that irreversible land improvements decrease quickly and the yields decline gradually when the farmer is confronted with land tenure insecurity caused by uncertain renewal of the lease contract.agriculture, dynamic programming, Land Economics/Use, Q15, Q21,

Landowner response to policies regulating land improvements: lease or search for other options?

Land improvements with long pay-back periods are often delayed on leased agricultural land, resulting in social costs through land degradation, decreased land productivity and environmental problems. An important question is thus how landowners would respond to regulations and mandates concerning land improvements. Based on a landowner survey, we analyse landowner choices under certain land improvement regulations, using the currently dominant choice of leasing land for agricultural use as the benchmark. The results indicated that land leasing will continue to increase in the future, but if the landowner mandate to co-finance costly land improvements is increased, landowners are predicted to respond significantly to these mandates and search for other land management options. Three heterogeneous landowner groups were identified based on their land use choices. Current leasers and amenity owners, in particular, were sensitive to land improvement mandates, and would avoid compulsory investment expenses by selling or afforesting their land.contingent behaviour, latent class model, landlord, land use, heterogeneity, Land Economics/Use, Q15, Q24, Q28,

The proximity of a field plot and land-use choice: implications for land consolidation

Traditional methods in agricultural economics and agricultural engineering have yielded mixed results when specifying the costs of an unfavourable parcel structure. Concepts related to travel costs and the production function are frequently applied when the costs of farming distant parcels are examined. However, farmers’ perspective regarding preferences for land use is ignored or partly overlapped by predictions made by researchers. Based on applied econometric models fitted to stated preference data, we revealed that the proximity of a field plot is a relevant factor affecting land-use decisions. One-fourth of landowners would change the use of a field plot if the condition of distance was changed. Landowners would continue farming a field plot if its distance from the farm compound was reduced, being willing to accept on average €79 less in net income per ha per year. The effect of a greater proximity of field plots to the farm compound following land consolidation was heterogeneous, particularly depending on the farm size and its location.land use options, distance factor, land consolidation, choice experiment, multinomial logit model, random parameters model., Land Economics/Use,

Fiscal and trade distorting effects of capital gains tax on land sales - empirical evidence from agricultural land market in Finland

capital gains, taxes, land, trade, fiscal effects, Agricultural Finance, Financial Economics, Land Economics/Use,

Farm Level Capital: Capital positions, structures, the dynamics of farm level investments, capital accumulation and leverage positions

Factor Markets Coordination: Centre for European Policy Studies (CEPS), Brussels, BelgiumAgricultural and Food Policy, Agricultural Finance, Political Economy,

Insure or Invest in Green Technologies to Protect Against Adverse Weather Events?

This paper analyses investments in green technologies when insurance is also an option. Green technologies are defined to have the power to increase productivity and decrease volatility of future revenues. The insurance options involve the scale and coverage either in a yield insurance or in an index insurance. The stochastic process is a combination of insurable stationary short-run process and non-stationary long run process. The optimal decision rules are solved numerically by stochastic dynamic programming. The results suggest that the index insurance maintains market based incentives to invest in green technologies whereas a yield insurance substantially decreases investments, as expected. An actuarially fair yield insurance decreases investments at high productivity firms. By contrast if the insurance premiums are supported to the extent that the net loading becomes negative, firms with the lowest productivity have strong incentives to collect the benefits of the subsidized insurance rather than invest in higher productivity and lower risks. The yield insurance is the most attractive for low productivity firms while the index insurance is the most attractive for high productivity firms. Nevertheless, the demand for actuarially fair index insurance is reduced also amongst the high productivity firms, when the correlation between the yield and the index falls below 50%.investment, insurance, uncertainty, dynamic programming, green technology, Agribusiness, Agricultural Finance, Financial Economics, Risk and Uncertainty,

Testing for Moral Hazard and Ranking Farms by Their Inclination to Collect Crop Damage Compensations

This paper tests for the extent of moral hazard problem within a Crop Damage Compensation (CDC) program that is similar to traditional multi peril crop insurances but is publicly funded and openly accessible for all farmers in Finland. We further estimate the potential of using the observed farmer and farm characteristics in ranking and classifying farms according to their incidence towards losses when they are protected. The data are the claimed and granted indemnity payments for each farm over the fifteen year period of 1995-2009. These data are complemented by data on total farm population in 2005. The data suggest that most of the farmers (60%) have not made any claims in the CDC program over the 15 year period. Those farms that claimed compensation did so typically either once or twice within the 15 year period. Nevertheless, a substantial number of farmers have claimed and also granted indemnity payments more regularly than can be justified by the exogenous (aggregate level) yield distributions. Based on the logit models, farmers and farms with certain observed characteristics are more inclined to the losses than the others. In general presence of animals declines the probability of crop damage. However, the existence of different animals on the farm classifies the farms by their inclination to collect crop damage compensations. In addition, the fixed municipality effects are significant indicating that the persons in charge for appraising the losses implement different standard

Land Improvements Under Land Tenure Insecurity: The Case of Liming in Finland

This article solves and characterizes optimal decision rules to invest in irreversible land improvements conditional on land tenure insecurity. Economic model is a normative dynamic programming model with known parameters for the one period returns and transition equations. The optimal decision rules for liming are solved numerically, conditional on alternative scenarios on the likelihood that the lease contract and, thus, farmer access to land is either renewed or expired. The model parameters represent Finnish soil quality and production conditions. The results suggest that irreversible liming decreases quickly and the yields decline gradually, when the farmer is confronted with land tenure insecurity caused by uncertain renewal of the lease contract. The results are confirmed via empirical results