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Agri-environmental schemes (AESs) and cross-compliance (CC) are the two main components of the common agricultural policy (CAP) that address environmental issues. Under regulation 1698 ⁄ 2005, agri-environmental scheme design has been established in such a way as to use CC as the baseline against which prescriptions and payments are identified. In this framework, agri-environmental payments to farmers are justified only for the component of public goods produced (if any) above the CC prescription level. This constraint has become a major determinant of the design of agri-environmental schemes in all EU Member States in which both instruments are implemented. This paper investigates farmer participation, compliance choices and the socially optimal level of monitoring when CC and agri-environmental schemes are jointly considered, and when information about compliance is asymmetrically distributed between farmers and the public regulator. The results show that the two policy instruments interact with each other, with agri-environmental payments actually providing incentives for CC, when the CC monitoring and sanction system does not guarantee full compliance. However, the numerical example in Emilia-Romagna (Italy) demonstrates that with the present combination of controls and sanctions, farmers have very little incentive to be compliant with both cross compliance and agri-environmental schemes. Hence, the results highlight that monitoring in CC or in AES does not have the same effect on the farmers' compliance. This underscores the need for further research in this field, particularly as provision of environmental goods becomes more important in the future CAP.

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[1] The legal framework in the EU is faced today with the new water framework directive (WFD) (60/2000) that sets up new criteria for water management, regulation, and pricing. The aim of this paper is to analyze the problem of water regulation in agriculture in connection to the WFD. This is done by setting up and testing a simulation model based on the integration of a mathematical programming model at farm level and an optimal regulation model at the level of irrigation boards. The model allows quantifying water demand and optimal regulation from the policy maker's point of view. When implementing both full cost recovery and the polluter pays principle, the results show likely major impacts of water pricing on farm income and employment. The optimal policy is a combination of pricing instruments related at the same time to crop mix, water consumption, and pollution. Transaction costs connected to policy implementation have to be weighted against the incentive benefits of volumetric pricing. Altogether, economic, social, and environmental issues have to be carefully considered in order to design suitable water policies.

The performance of different policy design strategies is a key issue in evaluating programmes for water quality improvement under the Water Framework Directive (60/2000). This issue is emphasised by information asymmetries between regulator and agents. Using an economic model under asymmetric information, the aim of this paper is to compare the cost-effectiveness of selected methods of designing payments to farmers in order to reduce nitrogen pollution in agriculture. A principal-agent model is used, based on profit functions generated through farm-level linear programming. This allows a comparison of flat rate payments and a menu of contracts developed through mechanism design. The model is tested in an area of Emilia Romagna (Italy) in two policy contexts: Agenda 2000 and the 2003 Common Agricultural Policy (CAP) reform. The results show that different policy design options lead to differences in policy costs as great as 200-400%, with clear advantages for the menu of contracts. However, different policy scenarios may strongly affect such differences. Hence, the paper calls for greater attention to the interplay between CAP scenarios and water quality measures.

Irrigated agriculture in Europe is facing major changes, due to the reforms of the Common Agricultural Policy and the coming into force of the new Water Framework Directive (60/2000). The objective of this paper is to evaluate the perceived outcome of different scenarios from the point of view of different stakeholders, as an instrument to support policy in the sector of irrigated farming. The methodology is based on the multicriteria analysis of water and agricultural policy scenarios and is applied in five study areas in Italy. The pay-offs for different stakeholders differ greatly between scenarios. Basic contrasts between farmer-related and environmental/water institutions are emphasised when facing different futures. This shows that greater coordination is necessary to provide consistent policies and appropriate incentives to farmers

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