Modelling of Agricultural Behavior under the CAP Regime: Assessment of Environmental Impacts and Policy Effectiveness

Constadina Passa () and Anastasios Xepapadeas ()

No 818, Working Papers from University of Crete, Department of Economics

Abstract: The structure of farming activity under the provisions of the generalized regime of the Common Agricultural Policy involving both the first and second pillar elements is modelled. Independently of whether regulated agents exhibit unbounded or bounded rationality, the impact of the different type of CAP measures, as prescribed by Agenda 2000, in the decision making - and thus on the environmental performance of a homogeneous population of farmers - are discussed. The problem of a representative farmer is used for this purpose. After assessing the environmental effectiveness of the various CAP regimes, the mechanism that provides the type of CAP instruments that safeguard the collective attainment of a social environmental target, along with the type of interdependence characterizing them, is defined under the analytical framework of unboundedly and boundedly rational agents respectively. The problem of the optimal regulation of an unboundedly rational population of farmers is discussed in both a static and a dynamic context. The long-run viability of the Agenda 2000 CAP reform is also examined under the assumption of bounded rationality by employing the evolutionary framework of replicator dynamics.

Keywords: Environmental impacts; coupling; decoupling; production subsidy; direct payment; cross-compliance principle; rural development subsidy. (search for similar items in EconPapers)
JEL-codes: Q18 Q51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-env and nep-reg
Date: 2007-12-10, Revised 2008-07-01
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Persistent link: http://EconPapers.repec.org/RePEc:crt:wpaper:0818

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