Decoupling and Agricultural Investment with Disinvestment Flexibility: A Case Study with Decreasing Expectations

This paper studies the effect of decoupling on optimal investment in agriculture assuming disinvestment flexibility. Agricultural income being determined by policy processes is subject to policy uncertainty. Case study examples suggest that assuming disinvestment flexibility, decoupling 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 of income from production, the stability of the compensating direct payments should be ensured.