Utilising Equilibrium-Displacement Models to Evaluate the Market Effects of Countryside Stewardship Policies: Method and Application

As part of the so called accompanying-measures of the CAP reform Council Regulation (EEC) 2078/92 was established in 1992. The goals of this regulation are to reduce farm output and/or to reduce environmentally detrimental side effects of farm production and/or to support farm income. This paper demonstrates how to use equilibrium-displacement models to analyse market effects of programmes that were introduced according to this regulation. It is argued that CSPs affect the product output in two different ways: first, there is the output decreasing effect of the program restriction and second, there is an output increasing effect of direct payments. An empirical example of our method for one of these programmes in Austria shows that the overall output effect is ambiguous and that the final outcome is more likely to be positive. Hence this particular scheme is probably counter-productive in decreasing production volumes, a major goal of CR (EEC) 2078/92. *) Universität für Bodenkultur Wien (University of Agricultural Sciences Vienna), Department of Economics, Politics, and Law, Gregor Mendel-Strasse 33, 1180 Vienna, Austria, [email protected] This study was carried out during Franz Sinabell was working for the EU-funded research project "Market Effects of Countryside Stewardship Policies" FAIR1/CT95-0709. Research was conducted while Klaus Salhofer was a Visiting Scholar at the University of California Davis. He would like to thank the Department of Agricultural and Resource Economics for its hospitality and also gratefully acknowledges support from the Austrian Science Fund, project No. J1479-OEK. The authors would like to thank participants of the "STEWPOL-project meeting" in Chania, the Research-Seminar at the University of Agricultural Sciences Vienna, and the meeting "Neuere Entwicklungen in den Wirtschaftswissenschaften unter besonderer Berücksichtigung der ökonomischen Theorie der Politik", in Konstanz for helpful comments.