From subsidy to land rent: how production-linked payments shape factor remuneration in agriculture

The paper aims to recognize the mechanism by which production-linked payments stimulate the inputs of production factors in agriculture and the mechanism for transforming subsidies into remuneration for production factors. The study is theoretical, and 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 decomposition of the remuneration of production factors was performed. This comprehensive approach to evaluating the impact of these payments, taking into account the side effects of using this instrument, represents a contribution to the literature. The proposed model can be applied to support the design of agricultural policy instruments, policymaking decisions concerning the selection of tools for achieving established objectives, and academic education in agricultural economics.