An impact of direct payments on production decisions in agriculture

Abstract

The paper deals with the employment of decoupled direct payments as the model of targeted lump-sum financial transfers to the farmers. It considers whether decoupled payments may alter producers’ resource allocation over time and lead to effects on production. Decisive topics of influence through which decoupled payments as an instrument of income redistribution could affect production through recipient’ decisions in both short and long time horizons are bringing to the attention as follows: wealth and investment effects, sector consolidation and payment basis effects in the framework of agricultural policy.