A micro economic investigation of Irish cattle farmer decisions in response to non-linear budget constraints
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This thesis will examine the effects of policy developments on the Irish beef sector, with a particular focus on agricultural subsidy payments. As a member of the European Union, Irish agriculture is governed by the Common Agricultural Policy. This complex and extensive policy has undergone a number of reforms since it was initially implemented. Irish farmers have benefited both financially and structurally through many different income support and capital support schemes. This thesis is particularly interested in how historical subsidy payments, coupled to production, affected farmer behaviour by influencing the choices farmers made in relation to stocking rates on their farms. Payments that were linked to producing specific agricultural products or keeping specific animal types were highly regulated with upper limits on the number of eligible animals or acres. Where limits were reached, payment levels changed thus creating non-linear budget constraints. These non-linearities provide a unique set of circumstances to test neo-classical consumer choice theory and look for evidence of rational farmer behaviour. Non-linear budget constraints are of particular interest in the fields of public and labour economics, where techniques have been developed to understand and predict labour supply decisions in relation to changes in taxation. In this thesis the same techniques are applied to understand stocking rate decisions in relation to subsidies. As a primary sector, agriculture has a duel role both in producing food and protecting the environment. Agricultural policy has the additional responsibility ensuring that the farmers who produce this food and act as caretakers of the primary factor of production, the land, receive an adequate income for doing so. Understanding farmer behaviour is therefore important for a number of reasons; firstly the ability to predict how individuals will react to a policy change is important for policy design. Secondly, proper identification of how individuals will react is significant for policy evaluation.
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