A general theory of cross-subsidization due to infra-marginal support is developed. Two sources of output distortion are identified: exit deterrence and extra-marginal output. Some firms would not be in business without the subsidy. Cost savings due to declining average costs are always greater...

As recently as a century ago, one out of two people in Europe was employed in the agricultural sector. Today agriculture represents only a small fraction of total employment in most EU member states. What makes this decline in agricultural employment even more striking is that this evolution has...