The impact of common agricultural policy (CAP) reform on farmers’ decisions

EU has decided a Common Agriculture Policy(CAP) reform in 2003 on decoupling farm subsidies, the 2014-2020 reform follows the spirit of the 2003 reform. In order to investigate the impact of CAP reforms on farmers’ production, consumption and investment decisions, first, I summarize different farm models on farmers’ choice behaviors in previous literature. Second, I develop my dynamic stochastic farm model with investment. I use second order perturbation method, Bayesian estimation and the Monte Carlo method in solving and estimating my model. With an application with French data, I am expecting a change in farms’ risk aversion level before and after the CAP reform