This paper examines the effects of decoupling policies on Greek cotton production. We estimate a system of cotton supply and input derived demand functions under the hypothesis that producers face uncertainty about prices. Using our estimation results we simulate the effects on cotton production under four alternative policy scenarios: the 'Old' CAP regime (i.e. the policy practiced until 2005), the Mid Term Review regime, a fully decoupled policy regime and a free trade-no policy scenario. Our results indicate that cotton production gradually decreases as more decoupled policies are adopted. Moreover, the fully decoupled payment is found to be non-production neutral since it indirectly affects producers' decisions through the wealth effect.

This article examines the effects of the application of panel data estimation methods on a system of equations with unbalanced panel data. We apply pooled, random-effects, and fixed-effects estimation in three data sets: small, medium, and large farms to examine the relationship between farm size and the elasticity of cotton supply with respect to cotton price. Our results indicate that the adoption of various estimation methods entails different estimated parameters both in terms of their absolute value and in terms of their statistical significance. Additionally, the elasticity of cotton supply with respect to price varies according to farm size.