A theoretical approach to agricultural support

Mizik, Tamás – Varga, Tibor

Keywords: welfare economics, normative economics, market failure, positive economics, support

The state intervenes vigorously in the function of agriculture that has been a source of controversy for many years. The commonest justifications for this are exposure to climatologic and biological factors, static nature of demand and need for provisions of adequate food supply. These justifications do not fit into the rationality of various schools of economics. Backing perfect market competition above all, classical-neoclassical schools reject agricultural support due to its market distorting effect. Normative (primarily welfare) schools upholding the need for perfect competition accept agricultural support for averting or alleviating market failures, because according to them these failures arise out of perfect market competition as markets tend to act rationally rather than Pareto-optimally.

It is the need for rational and Pareto-optimal market efficiency that confronts positive and normative schools of economics in considering agricultural support. None of the schools agree with subsidising production, but normative schools of economics under certain circumstance consider support acceptable if it increases market efficiency. Is there any reason why the present, traditional (taking agricultural peculiarities into account) forms of agricultural support for averting market failures would be accepted? It is this question we are attempting to answer. We analyse the rationality of the above schools and show the chain of arguments involving risks and deficiencies of markets that do not contradict their own principles possibly bringing about accord in justifying agricultural support and projecting new forms of agricultural support in addition to the so far unquestioned support for the countryside.

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