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

We argue in this paper that available econometric estimates of farmers’ risk aversion do notmeasure true farmers’ preferences towards risky outcomes. Available analyses are mostly ofstatic nature and indeed measure the parameters of the synthetic optimal value function ratherthan the deep parameters of the utility functions. We derive analytical and empirical results ina simple dynamic and stochastic framework showing that that there is not a simplerelationship between utility functions and value functions when agents have many decisionvariables. In particular we find that the value function does not necessarily exhibit DARAwhen the instantaneous utility function satisfies DARA and conversely. We recommendperforming dynamic econometric estimation with at least farm production and consumptiondata.