Mark Brady
Policy officer
Passive farming and land development : A real options approach
Author
Summary, in English
The EU's farmers are no longer required to produce commodities to receive direct payments as long as they keep their land in good condition. Some believe this is bad for development because it encourages passive farming. We evaluate, using a real options approach, the implications of decoupled payments for the desirability and optimal timing of agricultural land development when considering sunk investment costs and uncertain future returns. We find that decoupled payments accelerate development while passive farming increases, by adding managerial flexibility, the value associated with land. We then use the Nash bargaining solution to identify the rental share to be paid for leasing land. We show that a deal for the lease of land can always be reached, but that the facility to use passive farming as an outside option allows landowners to extract policy rents, thereby undermining the potential for the Basic Payment Scheme to support tenant farmers’ incomes.
Department/s
- Centre for Environmental and Climate Science (CEC)
- BECC: Biodiversity and Ecosystem services in a Changing Climate
Publishing year
2019
Language
English
Pages
32-46
Publication/Series
Land Use Policy
Volume
80
Links
Document type
Journal article
Publisher
Elsevier
Topic
- Agricultural Science
Keywords
- Bargaining
- Capitalization
- Common Agricultural Policy
- Decoupled payments
- Real options
Status
Published
Project
- Rural development through governance of multifunctional agricultural land-use
ISBN/ISSN/Other
- ISSN: 0264-8377