Decoupled Direct Payments Under Base Acreage and Yield Updating Uncertainty: An Investigation of Agricultural Chemical Use

Decoupled payments were thought to have minimal impacts on current production decisions and input use. However, the literature has identified several mechanisms through which decoupled payments become coupled. We analyze the effects of uncertainty regarding future policy changes on farm-level production decisions and input use, focusing on farmers’ expectations of base acreage and yield updating. Using farm-level data, we find positive relationships between both decoupled and other government payments and real per acre expenditures on agricultural chemicals. Furthermore, there is evidence that decoupled payments may affect the intensive margin more than other government payments.