Production-linked Payments and the Input and Remuneration of Production Factors in Agriculture

Abstract

Production-linked payments are used to support farmers' incomes and sustain production in atrophic sectors. Economic analysis tools allow the identification of undesirable side effects of using this instrument and determining the conditions for its effectiveness in achieving set goals. The study aims to recognize the mechanism by which production-linked payments stimulate the inputs of production factors in agriculture and the mechanism for transforming subsidies granted in the form of these payments into remuneration for production factors. The research methods used are economic modeling and marginalist analysis. It was demonstrated that production-linked payments change the allocation of resources compared to the allocation that results from the market mechanism, as well as influence the amount and structure of remuneration for production factors in agriculture. A theoretical decomposition of the remuneration of production factors into land rent and the remuneration of factors other than land was performed.