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Multifonctionality and non-agricultural supply of public goods

Le Cotty T., Voituriez T.. 2004. Montpellier : LAMETA, 14 p.. numero_rapport: DR n°2004-01.

Pigouvian policies tend to change relative prices in a welfare improving way, but can also be used strategically as trade distorting policies. For this reason, the question has been raised whether a separate provision of rural public goods should be preferred to a joint production. We show in this paper that the answer to this depends on the assumptions made on the cost functions regarding the relationships between private and public outputs, and on the social demand for these public goods. We interpret the land constraint effect on the joint production, as decreasing marginal economies of scope and under this assumption, we show that the cost of a non-agricultural policy is greater than the cost of a farm policy for lower levels of production and lower level of social demand. This is through both with farm targeted payments or production subsidies, compared with non agricultural provision of the public good. We confirm this result in the two-country case, for which the optimal level of agricultural support for public good provision is in general lower than in the case of one country.

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