Modelling of Agricultural Behavior under the CAP Regime: Policy Effectiveness and Design

Abstract

The paper discusses the design of optimal regulatory policies under an alternative analytical framework of unbounded and bounded rationality, by considering the mechanism that provides the type of the optimal CAP instruments that ensure the collective attainment of a social environmental target, along with the type of interdependence characterizing them. 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. Analysis indicated that.it may be socially desirable on environmental grounds not only to maintain coupled payments but also to impose on farmers a set of charges on the various aspects of farming activity.production subsidy, direct payment, cross-compliance principle, optimal regulation, unbounded rationality, bounded rationality, replicator dynamics.