The Common Agricultural Policy in relation to institutional economics

Vásáry, Viktória

Keywords: New Institutional Economics, Policy related transaction costs, trade off between costs and precision, Common Agricultural Policy of the EU

The EU’s Common Agricultural Policy (CAP) boasts such a unique system of aims and tools that it assumes and requires the presence of a serious, national institutional background for its implementation. However, if the necessary tools cannot – or can only partly – be utilised, due to an inadequate institutional framework, this endangers the achievement of the proposed aims. The agricultural policy can, therefore, only be fully executed within the appropriate institutional system.

It is an important task to independently analyse the functioning of key elements of the EAGGF Guarantee Payments system responsible for a significant proportion of support: the Payment Agency, and the Integrated Administration and Control System, which is necessary for managing the predominantly direct payments from the Guarantee Department. Beyond this it is necessary that both should be studied in a wider context, in terms of the new institutional economics that draws attention to information deficiencies and transaction costs.

The asymmetric nature of the information provided to Member States’ governments in relation to performing their delegated, payment-related tasks, requires a high level of monitoring, control and enforcement by Community institutions and the Commission. The deficiencies of shared management, which characterise the CAP may be seen as problems to be faced by both Old and New Member States and which can be handled by means of the principal-agent model.

Regarding transaction costs our attention should primarily focus on policy-related transaction costs. This issue has been gaining in importance in the case of the ever-changing CAP of the past 13 years. One significant question is whether in the course of a given policy amendment the implementation of new measures will cost more or less than the previous ones, while another is where to set the trade-off between costs and precision (targeting).

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