An integer programming dynamic farm-household model to evaluate the impact of agricultural policy reforms on farm investment behaviour

We develop a multi-objective farm-household dynamic integer programming model to simulate 24 investment behaviour in different policy and price scenarios, with a particular focus on the decoupling 25 of the Common Agricultural Policy (CAP). The model takes into account the characteristics of individual 26 assets, including ageing and fixity through the explicit consideration of transaction costs. A case study 27 application in the context of arable farming in Northern Italy is provided as an example. The results 28 emphasise different patterns of reaction of different farm-household types over time, as an effect of 29 the varying opportunity costs of resources and initial asset endowments. Overall, this application high- 30 lights the potentialities and limits of the methodology. In particular, the approach proved to be effective 31 in providing a variety of results depending on the individual features of each farm-household, such as the 32 differences between: (a) a ‘no reaction’ attitude; (b) an adaptation of farm activity and assets; and (c) a 33 radical reaction pattern guided by high-income alternatives to farming. This highlights the potential of 34 this tool as a generator of ideas and working hypotheses. We argue that, in view of the further develop- 35 ments of the CAP, the use of instruments able to account for multiple objectives, dynamics and invest- 36 ment choices will become even more relevant in the analysis of EU agricultural policy.