Causes of Multifunctionality: Externalities or Political Pressure?

The EU has argued that some agricultural subsidies are needed to provide the optimal amount of externalities (both positive and negative) produced by agriculture. The argument is that agriculture is "multifunctional" and externalities such as rural development and landscape would be underproduced, while some forms of pollution (such as nitrogen runoff) would be overproduced without government intervention. Meanwhile, the United States has raised the concern that multifunctionality is primarily an argument to transfer income to producers. In this paper, we discuss the motivation for the EU agri-environmental measures and empirically test for those underlying causes. We find that the programs are not targeted at those regions with the highest environmental need, but neither are they purely a substitute for traditional forms of agricultural subsidies. Demand for general environmental expenditure does influence agri-environmental expenditure as well, as does political structure.

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Selected Paper 136961

 Record created 2017-04-01, last modified 2018-01-22

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