THE EFFECTS OF SINGLE FARM PAYMENTS ON SCOTTISH AGRICULTURE: A CGE MODELING APPROACH

Using a CGE model calibrated on Scottish data, this paper examines two important issues related to evaluating impacts of the Single Farm Payment. These are specification of product transformation functions and investigation into supply elasticity parameter. Simulation results from a standard CGE were compared with those from an alternative optimisation framework proposed in this study. The latter yielded a policy effect that is likely to represent behaviour of a profit maximising farmer. The parameter sensitivity analysis showed the important role differences in supply conditions can play; which implied a need for further econometric studies to estimate supply parameters.