This paper presents the results of a transaction cost study on organic farming in the frame of the Federal Organic Farming Programme of Germany (Bundesprogramm Ökologischer Landbau). It investigates the hypothesis that organic farming represents a transaction cost reducing policy option to achieve agri-environmental objectives. It does so by comparing organic farming with a bundle of single measures that achieves nearly similar agri-environmental quality targets. In two case studies (Thuringia and Baden-Wuerttemberg), administration and control costs are measured from the state's and the farmers’ perspective. The study reveals that transaction costs increase with the number of single measures. From the viewpoint of agricultural administration, organic farming proved to be a policy option that saves transaction costs compared to single measures. For the farmers, organic farming loses its transaction cost advantages when the costs for 100-percent controls are taken into account, instead of 5-percent controls as practiced for other agri-environmental measures
