Welfare economics interpretation and domestic strategy of investment support

Varga, Tibor

Keywords: investment, efficiency ranges, welfare economics, support

A pivotal issue of competitive agriculture is the effectiveness of central investments support and yet no procedure is available for quantifying such effectiveness that is widely accepted in professional circles.

By examining the effectiveness of investment support on welfare economics basis, it can be shown that the effectiveness of support – that is the ratio of support remaining after deducting social costs (dead burden loss) - depends on the flexibility of supply and demand price. Furthermore the efficiency of support targeting – the part of support going to the targeted activity – varies with demand price flexibility of produced merchandise and investment support type. The supporter may consider all these points in drawing up support conditions. At the same time, however the supporter may take aspects of effectiveness into account in a more balanced manner when targeting support groups (by considering the limit and average efficiency of applicants).
By examining the data base of Test Plant Information System it would appear that agricultural authorities tended to follow a mixed strategy, in which aspects of efficiency and sustainability were equally considered.

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