Endogenous technology in dairy farming under environmental restrictions

In this paper an applied general equilibrium AGE model written in mixed-complementarity format is used to analyse the effects of an increase in milk quota in the Netherlands when nitrogen emissions in agriculture are restricted. The model combines the strengths of AGE models and mathematical programming models, which allows economy-wide policy analyses when technology switches are allowed. Results show that a welfare gain can be achieved by increasing milk quota while keeping nitrate N emissions in agriculture at the same level. Under such a policy change inactive N-extensive technologies in dairy farming become active and partly replace N-intensive technologies. Output in other agricultural industries decreases