Subsidizing External Benefits - The case of agriculture and tourism in Europe

This paper evaluates the nonmarket activities provided by farmers for recreational and residential purposes in several European regions. A regionally specified general equilibrium model is used to derive the efficiency conditions for a competitive equilibrium to guarantee a Pareto optimal outcome, and some conclusions regarding compensation payments are drawn. The empirical analysis focuses on tourists' willingness to pay (WTP) for the provision of agricultural landscape-cultivating activities in Austria. The mean and median WTP of vacationers is 0.65 ECU and 0.25 ECU per person per day, respectively, with the figures varying among the nationalities of the tourists. A comparison of these measures with current voluntary compensation payments made to farmers for the preservation of an agricultural countryside in several Austrian tourism communities suggests that the hypothetical contingent valuation (CV) results represent a valid order of magnitude for the value of recreation-related agricultural services.