Complex Policy Choices about Agricultural Externalities: Efficiency, Equity and Acceptability

A feature of the research contribution of Konrad Hagedorn is his proposals for the integration of economic, social and political dimensions of agricultural policy. His wholistic approach involves, in part, an extension of new institutionalism to public policy. This article identifies a number of difficulties that arise in choosing public policies for regulating externalities generated by agricultural activity. First, it is noted that finding an economically efficient agricultural policy can be difficult because the functions involved can be irregular – they may involve features associated with the mathematics of catastrophe. This adds to the complexity of public decision-making and adds to the bounds in rational choice. Secondly, in the light of the research results of behavioural economists and other considerations, it is shown that efficient economic solutions to resource allocation are not independent of the distribution of property rights. This inevitably requires consideration of whether the distribution of these rights is equitable. Thirdly, the importance of institutional structures for the transaction costs (or more generally administrative costs) of implementing agricultural policy are stressed and this is illustrated. Fourthly, the political acceptability or practicality of implementing policies is claimed to be a relevant consideration in choosing agricultural policies. It is noted that this is influenced by existing social structures and cultural factors. Some of these issues are briefly illustrated by public policies (such as those implied by the International Convention on Biological Diversity) designed or intended to extend property rights in genetic material.