Through empirical simulations of the Taiwanese rice market, we estimate the effects of agricultural policies designed to ensure optimal levels of two multifunctional outputs, groundwater recharge and methane emissions. The settings of policy instruments differ by region to reflect land quality and the conditions of the aquifers. The effects on rice production, resource allocation, and returns to farm assets also differ. Welfare gains are highest if transboundary costs of methane emissions are taken into account. National payments set as a weighted average of optimal regional payments may result in similar welfare gains at lower administrative costs. The costs of assistance measures to help farmers adapt to the impact of lower asset values are shown to be less than under current support policies.


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