Credit Market Imperfections and the Distribution of Policy Rents

Abstract

This article shows that credit market imperfections have important implications for the distribution of policy rents. In a model with land as fixed factor and credit market imperfections, when an area payment is given, land rents go up by more than the subsidy. On aggregate farms may lose from the subsidy. The results depend on the extent to which subsidies have direct and indirect effects on the credit constraints, on whether farms rent or own land, and on farm heterogeneity. Copyright 2009, Oxford University Press.

Direct Payments and Land Rents: Evidence from New Member States

“…As such our results confirm the theoretical work on the interaction of direct payments and credit constraints by Ciaian and Swinnen (2009) Finally, the regression results confirm our expectation regarding the impact of a country's farm structure. We find that in countries where a larger share of the agricultural land is used by corporate entities (and hence more imperfect competition), a lower share of the direct payments is capitalized in the average rental price.…”

“…In addition, we include an interaction term between the variables CREDIT i,t and DP i,t . As predicted by the theoretical work of Ciaian and Swinnen (2009), we expect that in the presence of credit constraints capitalization of direct payments in land rents is more important since direct payments may help to improve farmers' access to credit (e.g. use of direct payments as collateral for bank loans).…”

“…Direct payments may reduce farmers' credit constraints, for example because farmers may use the direct payments as collateral for bank loans. As consequence, the marginal productivity of agricultural land increases which will in turn boost the demand for agricultural land as theoretically shown by Ciaian and Swinnen (2009).…”

“…Ciaian and Swinnen (2009) develop a theoretical model in which they analyse the impact of credit market constraints on capitalization of area payments in land rents. They find that, in the presence of credit market imperfections, area payments increased land rents by more than the payment.…”

Agricultural and rural capital markets in Turkey, Croatia and the FYR of Macedonia

“…Latruffe (2005) investigated the impact of the credit market imperfections on farm investment in Poland, where the small-scale family farms prevail, and finds that the farmers with more tangible assets and with more own land were less credit constrained than others. Ciaian and Swinnen (2009) analysed the credit market imperfections and the associated distribution of the policy rents. Smaller rural credit constraints are also indentified for some new EU member states such as Hungary (Bakucs et al 2009) and Slovenia (Bojnec and Latruffe 2011).…”