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Multifunctional Agriculture and the Preservation of Environmental Benefits

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Summary

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.

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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.

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Keywords

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

JEL Classification

  • D61
  • Q15
  • Q24
  • Q25
  • Q26