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Abstract
Using a CGE model calibrated on Scottish data, this paper examines two important issues related to
evaluating impacts of the Single Farm Payment. These are specification of product transformation
functions and investigation into supply elasticity parameter. Simulation results from a standard CGE
were compared with those from an alternative optimisation framework proposed in this study. The
latter yielded a policy effect that is likely to represent behaviour of a profit maximising farmer. The
parameter sensitivity analysis showed the important role differences in supply conditions can play;
which implied a need for further econometric studies to estimate supply parameters.