Farmers' Crop Acreage Decisions in the Presence of Credit Constraints: Do Decoupled Payments Matter?

While in theory decoupled payments do not distort production decisions, in practice there are several potential coupling mechanisms for these payments. We use farm-level data from Kansas to revisit the issue of how (de)coupled are these supposedly “decoupled” payments by focusing on how they may impact production through credit constraints. In particular, we study how production effects may have differed across farmers with varying levels of debt pressure. Our empirical approach exploits the fact that we can observe the same farm over time (and so can account for the effects of time-constant omitted variables) to study how these payments affected total crop acres, owned acres, and the decisions to plant corn, sorghum, soybeans and wheat. Like previous studies, we find small production effects. Nonetheless our results suggest decoupled payments have potentially distortionary effects on production.