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Abstract

Many previous analyses of multifunctionality in agriculture claim there is positive jointness between the production commodities and nonmarket goods and services. Those analyses have not treated acreage as an endogenous variable. This leads to several errors in terms of the analysis of policy impacts, and hence also the policy advice. The main contribution of this paper is the development of an analytical framework where acreage is endogenously determined. This framework is then used to demonstrate that any policy that influences resource allocation also affects agricultural commodity production. Hence, there is no such thing as a fully decoupled support. The impacts on commodity markets from direct payments to environmental goods and services are, however, smaller than the distortions from policies that inflate commodity prices.

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