Stimulating organic farming via public services and an auction-based subsidy

Governments generally use a mix of temporary hectare payments and provision of public services to stimulate the organic crop sector. In this paper, a conceptual model is developed for determining a socially optimal hectare payment for any given level of public services. Farm heterogeneity, due to the variability of soil quality and management skills, is explicitly taken into account. Using an nth price auction mechanism, farmers indicate what their reservation subsidy is for a given level of public input provision. The results of this auction are used to determine the government¿s optimal policy choices.