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Abstract

There is growing interest in green payments subsidizing conservation measures on working farmland based on the premise that they have positive effects on the environment and agriculture simultaneously without causing international trade distortions. This paper uses a Ricardian land market equilibrium model to examine the impacts of green payments. The analysis shows green payments can worsen ambient pollution damage by subsidizing the expansion of more intensive crop cultivation. Some forms of green can increase cultivation intensity (and thus environmental damage) as well. These adverse effects can be avoided by careful targeting, but such targeting is likely to be quite difficult.

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