Agricultural provision versus non agricultural provision of a public good
2003
Le Cotty, Tristan | Voituriez, Tancrède
When public goods are a joint output of an agricultural production, there is a trade-off between agricultural and non agricultural provision of the public good. The principle of minimal price distortion in the reform of agricultural policies has led to a theoretical recommendation that public goods, if under-provided through the free market level of agricultural activity, should be promoted through non agricultural policies instead of agricultural policies. We show that the scope economies between agricultural production and public good have a key role in determining the optimal way of public good provision. If the policy is a non agricultural policy, the production cost is lower, but generates marginally increasing dead weight losses. Under the assumption that scope economies are marginally decreasing, we show that the optimal policy is a policy mix of agricultural support and non agricultural policy. In particular, we show that the optimum reached for a level of agricultural output necesseraly departs from current market equilibrium. In the case of a large importing country, such a change in agricultural output equilibrium generates in turn a world price change through terms-of-trade effect. Efficient domestic support, even decoupled, has in this particular case a depressive impact on the world market equilibrium price (Résumé d'auteur)
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