Direct payments versus interest rate subsidies to new farmers: a simulation analysis of alternative farm set-up policies in France

This article considers the effectiveness of the current farm set-up policy in France relative to a direct payments policy. Specifically, using information on French specialist cereal farms from the French Farm Accountancy Data Network, the current policy of interest rate subsidies plus direct payments is simulated and compared with a direct payments scheme in the presence of asymmetric information. The results indicate that the budgetary cost of a direct payment scheme when information is perfect, i.e. the government knows which farms would set up without subsidy, is substantially less than the subsidy cost of the simulation of the current policy. However, the results show that the presence of an imperfect information increases the costs of a direct payments policy significantly with total costs, in this case, substantially exceeding those for the current policy simulation.