This paper derives the efficient set of policies for a multifunctional agriculture and relates them to trade. In general, efficiency cannot be achieved through simple output subsidies, but the efficient policies to move closer to socially optimal levels of multifunctional, non-commodity outputs may also change commodity output levels. Accounting for international price effects, large importing and exporting nations have incentives to favour subsidies for non-commodity outputs and to oppose them, respectively, regardless of the true value of these agriculturally related public goods. The policy incentives are illustrated through a stylised simulation of US agriculture.
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The authors wish to thank Nancy Chau, Andrew Barkley, the editor and three anonymous reviewers for helpful comments and suggestions. Any remaining errors are our own. The research on which this paper is based was supported in part by the Cornell Agricultural Experiment Station with funds from the Cooperative State Research, Education and Extension Service, US Department of Agriculture, Projects NYC-121444 and NYC-121490. Any opinions, findings or conclusions are those of the authors and do not necessarily reflect the view of the US Department of Agriculture.
- Agricultural trade
- Environmental policy