EU-wide Distributional Effects of EU Direct Payments Harmonization analyzed with CAPRI

Abstract

We argue in this paper that available econometric estimates of farmers’ risk aversion do not measure true farmers’ preferences towards risky outcomes. Available analyses are mostly of static nature and indeed measure the parameters of the synthetic optimal value function rather than the deep parameters of the utility functions. We derive analytical and empirical results in a simple dynamic and stochastic framework showing that that there is not a simple relationship between utility functions and value functions when agents have many decision variables. In particular we find that the value function does not necessarily exhibit DARA when the instantaneous utility function satisfies DARA and conversely. We recommend performing dynamic econometric estimation with at least farm production and consumption data.distributional effects, SPS, flat-rate payment, CAP reform, farm level model, CAPRI farm type layer, International Relations/Trade, Q11, Q12, Q18,