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Abstract

This paper analyses how market imperfections affect the welfare effects of introducing the CAP in the new Eastern Member States (NEMS) of the EU. We model how transaction costs and imperfect competition in the land market affect the distribution of policy rents. We find that benefits of direct payments end up with landowners in NEMS also with imperfections in the NEMS land markets. With unequal access to subsidies small tenant farmers may even lose out from the subsidies. Decoupling of payments shifts policy rents to farmers. However, decoupling will constrain productivity enhancing restructuring which would result from accession induced improvements in the land markets. Using reserve entitlements to mitigate this effect reduces the intended benefits on distortions and target efficiency.

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