Skip to main content


Multifunctional Agriculture and the Preservation of Environmental Benefits

Article metrics

  • 193 Accesses

  • 3 Citations


We investigate environmental aspects of agriculture from a welfare economic perspective and show that efficiency prices of agricultural and forest land include important amenity and non-use values that exhibit the character of undepletable externalities. To achieve a social optimum these must be internalised, while taking equity concerns into account. We propose compensation of farmers and forest managers according to the marginal external benefit of their land use and a combination of charges and subsidies to improve rural water quality. This is consistent with efficiency requirements and would not cause additional market distortions. Moreover, it would leave the property rights on the land with the farmers and assign the right on clean air and water to the consumers.


  1. Abler, David (2001), “A Synthesis of Country Reports on Jointness Between Commodity and Non-commodity Outputs in OECD Agriculture”, Workshop on Multifunctionality, Paris, 2–3 July, 2001, Organisation for Economic Co-operation and Development, Directorate for Food, Agriculture and Fisheries.

  2. Alberini, Anna and Kathleen Segerson (2002), “Assessing Voluntary Programs to Improve Environmental Quality”, Environmental and Resource Economics, 22, pp. 157–184.

  3. Anderson, Kym (2000), “Agriculture’s ‘Multifunctionality’ and the WTO”, Australian Journal of Agricultural and Resource Economics, 44, pp. 475–494.

  4. Baumol, William J. and Wallace E. Oates (1988), The Theory of Environmental Policy, Second edition, Cambridge, New York and Melbourne.

  5. Blandford, David and Richard N. Boisvert, (2002), “Multifunctional Agriculture and Domestic/International Policy Choice”, Estey Centre Journal of International Law and Trade Policy, 3, pp. 106–118.

  6. Bohman, Mary, Joseph Cooper, Daniel Mullarkey, Mary Anne Normile, David Skully, Steven Vogel and C. Edward Young (1999), “The Use and Abuse of Multifunctionality”, Economic Research Service, USDA, Washington, DC.

  7. Bromley, Daniel W. (2000), “Can Agriculture Become an Environmental Asset?”, World Economics, 1, pp. 127–139.

  8. Cabe, Richard and Joseph A. Herriges (1992), “The Regulation of Non-Point-Source Pollution Under Imperfect and Asymmetric Information”, Journal of Environmental Economics and Management, 22, pp. 134–146.

  9. Gardner, B. Delworth (1977), “The Economics of Agricultural Land Preservation”, American Journal of Agricultural Economics, 59, pp. 1027–1036.

  10. Griffin, Ronald C. and Daniel W. Bromley (1982), “Agricultural Runoff as a Nonpoint Externality”, American Journal of Agricultural Economics, 64, pp. 547–552.

  11. Hediger, Werner (2003a), “Alternative Policy Measures and Farmers’ Participation to Improve Rural Landscapes and Water Quality: A Conceptual Framework”, Swiss Journal of Economics and Statistics, 139, pp. 333–350.

  12. Hediger, Werner (2003b), “Sustainable Farm Income in the Presence of Soil Erosion: An Agricultural Hartwick Rule”, Ecological Economics, 45, pp. 221–236.

  13. Hodge, Ian (1991), “The Provision of Public Goods in the Countryside: How Should It Be Arranged?”, in: Nick Hanley (Ed.), Farming and the Countryside: An Economic Analysis of External Costs and Benefits, Wallingford, U.K., pp. 179–196.

  14. Jiang, Tingsong (2001), “Earmarking of Pollution Charges and the Sub-Optimality of the Pigouvian Tax”, Australian Journal of Agricultural and Resource Economics, 45, pp. 623–640.

  15. Just, Richard E., Darell L. Hueth and Andrew Schmitz (2004), The Welfare Economics of Public Policy: A Practical Approach to Project and Policy Evaluation, Cheltenham, UK, and Northampton, MA, USA.

  16. Lankoski, Jussi and Makku Ollikainen (2003), “Agri-Environmental Externalities: A Framework for Designing Targeted Policies”, European Review of Agricultural Economics, 30, pp. 51–75.

  17. Lee, John G., Philip L. Paarlberg and Maury Bredahl (2005), “Implementing Multifunctionality”, International Journal of Agricultural Resources, Governance and Ecology, 4, pp. 216–231.

  18. Lopez, Rigoberto A., Farhed A. Shah and Marilyn A. Altobello (1994), “Amenity Benefits and the Optimal Allocation of Land”, Land Economics, 70, pp. 53–62.

  19. Mahé, Louis-Pascal (2001), “Can the European Model be Negotiable in the WTO?”, EuroChoices, Spring 2001, pp. 10–16.

  20. McConnell, Kenneth E. (1989), “Optimal Quantity of Land in Agriculture”, Northeastern Journal of Agricultural and Resource Economics, 18, pp. 63–72.

  21. OECD (2001), Multifunctionality: Towards an Analytical Framework, Organisation for Economic Co-operation and Development, Paris.

  22. OECD (2003), Multifunctionality: The Policy Implications, Organisation for Economic Co-operation and Development, Paris.

  23. Peterson, Jeffrey M., Richard N. Boisvert and Harry de Gorter (2002), “Environmental Policies for a Multifunctional Agricultural Sector in Open Economies”, European Review of Agricultural Economics, 29, pp. 423–443.

  24. Randall, Alan (2002), “Valuing the Outputs Of Multifunctional Agriculture”, European Review of Agricultural Economics, 29, pp. 289–307.

  25. Ribaudo, Marc O., C. Tim Osborn and Kazim Konyar (1994), “Land Retirement for Reducing Agricultural Nonpoint Source Pollution”, Land Economics, 70, pp. 77–87.

  26. Segerson, Kathleen (1988), “Incentives and Uncertainty for Nonpoint Pollution Control”, Journal of Environmental Economics and Management, 15, pp. 87–98.

  27. Segerson, Kathleen and Thomas J. Miceli (1998), “Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?”, Journal of Environmental Economics and Management, 36, pp. 109–130.

  28. Shortle, James S. and David G. Abler, D.G., Eds. (2001), Environmental Policies for Agricultural Pollution Control, Wallingford, UK, and New York, USA.

  29. Vatn, Arild (2002), “Multifunctional Agriculture: Some Consequences for International Trade Regimes”, European Review of Agricultural Economics, 29, pp. 309–327.

  30. Xepapadeas, Anastasios P. (1995), “Observability and Choice of Instrument Mix in the Control of Externalities”, Journal of Public Economics, 56, pp. 485–498.

Download references

Author information

Correspondence to Werner Hediger.

Additional information

The authors are grateful for critical comments and suggestions to two anonymous reviewers of this journal, and to various commentators for critically reading and commenting earlier versions. They were helpful in improving this article.

Rights and permissions

Reprints and Permissions

About this article


  • agriculture
  • externalities
  • land allocation
  • multifunctionality
  • property rights

JEL Classification

  • D61
  • Q15
  • Q24
  • Q25
  • Q26