Juergen Bracht

Charles Figuières
email: figuiere@ensam.inra.fr

Marisa Ratto

Relative performance of two simple incentive mechanisms in a public good experiment

Keywords: biens publics, fourniture volontaire, mécanismes incitatifs public goods, voluntary provision, incentive mechanisms

Cet article présente les résultats d'une expérience construite pour comparer la performance relative de deux mécanismes incitatifs dans un problème de bien public. Le premier mécanisme récompense / pénalise les déviations de la contribution de chaque agent par rapport à la moyenne des autres contributions au bien public (mécanisme taxesubvention). Le second mécanisme donne aux agents la possibilité de subventionner les contributions des autres (mécanisme de compensation). Il apparaît que les deux mécanismes accroissent la contribution au bien public. Le mécanisme taxe-subvention produit des prédictions précises du niveau moyen de bien public, alors que le mécanisme de compensation est relativement moins fiable.

Introduction

Many problems in relation with the organisation of society revolve around giving right incentives to people so that their individual interests are in line with the general interest. The "invisible hand" generally fails to produce a Pareto optimal organisation of economic activities in the presence of public goods: since agents can beneÞt from others' contributions to such goods without contributing themselves, individually rational decisions generally fall short of Pareto optimal levels, a phenomenon referred to as the free-rider problem.

The free-rider problem has come to be viewed as the canonical representation of collective action problems. Environmental issues like pollution reduction and biodiversity protection offer only but two examples from many such issues, that can be found in other Þelds like public economics, macroeconomics, international economics... This has created a great deal of interest among social scientists, who have put much effort to increase our knowledge of the problem. Later on, they have also reacted by engineering theoretical mechanisms to restore Pareto optimality. Meanwhile, laboratory experiments have continuously provided a precious help in testing theories, and achieving a better understanding of both free-rider behaviour and the efficiency of suggested solutions.

The goal of this paper is to discuss, from an experimental point of view, the relative merits, or weaknesses, of two simple mechanisms proposed in the theoretical literature to solve the free-rider problem in public goods situations. One mechanism rewards and penalizes deviations from the average contribution of the other agents to the public good: this is the tax-subsidy mechanism proposed by [START_REF] Falkinger | Efficient private provision of public goods by rewarding deviations from average[END_REF]. The other one introduces a preplay stage where agents contemplate the possibility to offer subsidies to one another before contributions are decided: this two-stage mechanism is referred to as the compensation mechanism (see Varian (1994aVarian ( , 1994b)), who himself builds on earlier works of [START_REF] Guttman | Understanding collective actions: matching behavior[END_REF][START_REF] Guttman | Collective action and the supply of campaign funds[END_REF][START_REF] Guttman | A non-Cournot model of voluntary collective action[END_REF], Moore and [START_REF] Repullo | Subgame perfect implementation[END_REF], [START_REF] Danziger | Implementing the Lindahl voluntary-exchange mechanism[END_REF]).

Focusing on those two mechanisms is interesting for a number or reasons. Firstly, within the set of existing theoretical mechanisms they share the merit of simplicity and are, therefore, more likely to be applied in real life situations. Secondly they produce supermodular or near supermodular games, a technical property which is theoretically sufficient to ensure convergence to Nash equilibria under a wide set of learning dynamics. This is important, for real subjects are bounded rational agents, who generally start somewhere off the equilibrium path and who do not necessarily converge to it. Existing laboratory experiments somehow conÞrm the relevance of the supermodularity property for convergence (see [START_REF] Gazzale | When does learning in games generates convergence to Nash equilibria? The role of supermodularity in an experimental setting[END_REF] for a systematic study of this topic). Thirdly, those two mechanisms rest on two different (some would even say opposite) views of the public sector intervention. The tax-subsidy mechanism, could be called a "coercion" solution since, once in place, agents cannot escape it, and can no longer enjoy the same level of utility by keeping unchanged their behaviours. Also, it assumes a higher degree of involvement of the public authorities than usually required by market institutions. By contrast, the compensation mechanism could be termed a "liberal" solution: it does respect the agents' freedom of choice as agents can escape the mechanism; keeping unchanged their behaviours won't reduce their utility levels. But former actions are no longer in equilibrium. It is also less demanding as far as public authorities involvement is concerned. It is more coasian in spirit for it requires the minimal state interventions to protect property rights and to guaranty enforceability of agents' agreements. With this coercion/liberal distinction, we have in mind something more precise than a general philosophic remark. Recent experimental and Þeld evidences observe that externally imposed rules tend to "crowd out" endogenous cooperative behaviors (see [START_REF] Ostrom | Collective action and the evolution of social norms[END_REF] pp 147-148, and the references therein). Social norms like trust, fairness and reciprocity might explain the persistent propensity of subjects to cooperate, at least partially. In the presence of a strongly coercive mechanism, there is no need for internal norms to develop and sustain cooperation. But with a weak external rule, it seems that the formation of social norms is deterred while the temptations to deviate from cooperation become more seducing, possibly resulting in the worst scenario. To the extent that the liberal solution could be considered a weak external rule, one would expect it to be less efficient than the coercion solution.

In the simple framework we have chosen for the experiment, neglecting convergence issues, those two mechanisms theoretically produce (roughly) the same outcome. The next step is to check how well they perform with real subjects. They have already been separately tested in laboratory into two different contexts. Overall, those two simple solutions have surprisingly good performances, in comparison with other theoretical mechanisms already tested 1 . [START_REF] Andreoni | Pre-play Contracting in the Prisoners' Dilemma[END_REF] have assessed the merits of the compensation mechanism in a prisoners' dilemma experiment. Without the mechanism, only one third of the subjects chose to cooperate. The introduction of the subsidy stage increased cooperation from one third to two thirds. [START_REF] Falkinger | A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence[END_REF] studied the impact of the tax-subsidy mechanism in several public good environments, varying group size and payoff functions. They report that the mechanism causes an immediate and large shift toward the efficient level of public good. They also report that the Nash equilibrium is an unusually good predictor for behaviours under the mechanism.

The originality of our paper is twofold. First it is to apply the compensation mechanism in a public good framework with interior dominant strategies, which despite its simplicity is a bit more complicated than the prisoners' dilemma game used in [START_REF] Andreoni | Pre-play Contracting in the Prisoners' Dilemma[END_REF]. Second it is to offer the possibility to compare, from an empirical point of view, the two mechanisms, by running them in the same framework. Our Þndings are as follows: i) we conÞrm Falkinger et al. result, with different subjects and a different group composition; in particular, the starting levels of contributions are unusually high, ii) both mechanisms lead to an increase in the levels of contributions to the public good, iii) the tax-subsidy mechanism allows for surprisingly good point and interval predictions of the average levels of contribution; however the compensation mechanism allows for less reliable predictions of the average levels of contributions.

The rest of the paper is organised as follows. Section 2 describes the public good economy we have reproduced in the laboratory; it also introduces the two mechanisms. The experimental design is discussed in Section 3, and empirical results are offered in Section 4. Section 5 discusses and summarizes these results.

A public good experiment with quadratic utility

The economic situation reproduced in the laboratory is as follows. Two agents i = 1, 2 are endowed with an exogenous income y i , which they can divide between the consumption c i of a composite private good, and a contribution g i to the production of a public good G. The production technology for the public good takes the simplest form : G = g 1 + g 2 . While c i is enjoyed by agent i only, the public good nature of G means that both agents beneÞt from it. Thus agent i's preferences are typically represented by utility functions of the form:

U i ¡ c i , G ¢ , i = 1, 2. (1)
In the laboratory, we have endowed the subjects with quasi-linear quadratic reward functions:

U i ¡ c i , G ¢ = M i c i - 1 2 N i c 2 i + G , M i , N i > 0 , i = 1, 2.
Note that those functions U i are concave, increasing in pubic good consumption, and for c i ∈ [0, M i /N i ] they are non decreasing in private good consumption as well. This choice of functions gives us the simplest framework consistent with the questions we want to challenge 2 .

The reasons for this particular choice of utility functions are twofold. First of all there is a need to keep the framework as simple as possible to ensure that experimental subjects will get a good (and fast) understanding of the link between the proÞle of decisions and their monetary earnings. Secondly the chosen framework must be relevant with respect to those theoretical properties of the two mechanisms we want to test experimentally, namely their ability to offer the subjects the correct incentives to take efficient decisions without requiring any knowledge of their preferences.

Varian's mechanism can be applied to a large set of situations, including those for which Falkinger's mechanism has been designed; logically we are therefore limited only by the requirements of Falkinger's mechanism. Most of the public good games used for experiments are games with linear payoffs, i.e. the simplest conceivable framework, where corner decisions are dominant strategies. Falkinger's mechanism can be applied to such games 3 , but it then requires that the designer knows the agents' preferences. If the ambition is to challenge asymmetric information issues where the designer ignores agents' preferences, the mechanism does not have any relative advantage over more traditional pigovian tax / subsidy schemes, except in public good frameworks where agents undertake interior decisions, i.e. strictly positive contributions g i . Only then the mechanism can Nash implement an allocation arbitrarily close to efficiency with the requirement that the regulator knows only the number of agents involved in the problem, and not their preferences.

With quasi-linear quadratic utility functions, the Nash equilibrium is made of interior contributions. An additional advantage of the chosen fam-ily is that the marginal utility from public good consumption is constant ; as we shall see in the next section, the resulting Nash equilibrium involves dominant strategies, therefore subject are more likely to calculate accurately the equilibrium strategies (before the introduction of any mechanism).

The free-rider problem

How much will the agents contribute to the public good on a voluntary basis? To answer this question , theorists view the non cooperative decisions as a Nash equilibrium, whereby each agent optimizes her utility, taking as given the other agents' decisions. Formally, under this behavioural assumption, each agent's problem reads as:

max c i ≥ 0, g i ≥ 0 U i (c i , G) s.t. ½ c i + g i = y i G = g i + g j , g j given ,
which leads to the Þrst order condition:

MRS i = U i G U i c = 1.
For our quadratic example, the Þrst order conditions of the two agents are:

-M 1 + N 1 (y 1 -g 1 ) + 1 = 0 -M 2 + N 2 (y 2 -g 2 ) + 1 = 0
Solving those equations, the Nash equilibrium quantities are:

g N i = 1 -M i N i + y i , c N i = M i -1 N i , G N = y 1 + y 2 + 1 -M 1 N 1 + 1 -M 2 N 2
For later use, it is worth computing the equilibrium utilities:

U i ¡ c N i , G N ¢ = M i M i -1 N i - 1 2 N i µ M i -1 N i ¶ 2 + y 1 + y 2 + 1 -M 1 N 1 + 1 -M 2 N 2
By contrast, Samuelson's conditions for efficiency requires MRS 1 +MRS 2 = 1. Overall, those Þrst order conditions and the feasibility conditions are given by:

½ P i 1 M i -N i c i = 1 , P i c i + G = P i y i , or equivalently M 1 -N 1 c 1 + M 2 -N 2 c 2 = (M 1 -N 1 c 1 ) (M 2 -N 2 c 2 ) , c 1 + c 2 + G = y 1 + y 2 .
Samuelson's conditions differ from the Nash equilibrium conditions, meaning that the Nash equilibrium is generally not Pareto optimal.

Nash implementation with well-informed agents

This section describes two simple theoretical mechanisms designed to Nashimplement Pareto optimal decisions in informational frameworks where agents know each other preferences, but of course the designer does not.

Tax-subsidy mechanism

This mechanism modiÞes each agent's budget constraint by rewarding (penalizing) contributions over (under) the mean of the other agents' contributions. To do so, the designer needs to choose a single parameter: a tax-subsidy rate β. Under this new institutional framework, the problem of a typical agent becomes: max

c i ≥ 0 , g i ≥ 0 U i (c i , G) s.t. ½ c i + g i = y i + β (g i -g j ) , β ≥ 0 G = g i + g j
Note that this mechanism is necessarily balanced, whatever the contribution decisions, since what an agent receives corresponds exactly to what the other agent pays. The Þrst order conditions for interior solutions are:

(β -1)M 1 -(β -1)N 1 [y 1 -g 1 + β (g 1 -g 2 )] + 1 = 0 , (β -1)M 2 -(β -1)N 2 [y 2 -g 2 + β (g 2 -g 1 )] + 1 = 0 .
Solving this system one Þnds a solution for G and c i conÞgured by β. The nice feature of this mechanism is that, with a value for β arbitrarily close to n-1 n = 1/2, the resulting equilibrium will be arbitrarily close to efficiency. Indeed, letting β → 1/2 those solutions tends to:

G f = 2 -M 1 N 1 + 2 -M 2 N 2 + y 1 + y 2 c f i = M i -2 N i
Those equilibrium quantities fulÞll Samuelson's conditions for efficiency stated above. The resulting limit utilities are:

U i ³ c f i , G f ´= M i M i -2 N i - 1 2 N i µ M i -2 N i ¶ 2 + y 1 + y 2 + 2 -M 1 N 1 + 2 -M 2 N 2

Compensation mechanism

There exists different versions of the compensation mechanism in the literature. They all are two-stage mechanism, and the one we use is as follows. First, agents voluntarily offer a subsidy to the other agents' contributions. Then, given this proÞle of subsidies, agents contribute to the public good.

It is very similar to the mechanism suggested by [START_REF] Danziger | Implementing the Lindahl voluntary-exchange mechanism[END_REF]. More sophisticated forms of this mechanism add penalization terms (see Varian (1994a)), which are ignored here. A subgame perfect Nash equilibrium is found by solving this game backward. Formally:

• The maximization program in the second stage is:

max c i ≥ 0 , g i ≥ 0 U i (c i , G) s.t. ½ c i + (1 -s j ) g i = y i -s i g j G = g i + g j
This leads to the Þrst order condition:

MRS i ≤ (1 -s j ) , i = 1, 2.
It is worth noting that adding up the two individual budget constraints, whatever the decisions as for the contributions and the subsidies, one has: c i + c j + g i + g j = y i + y j ; this means that this form of the mechanism meets the balanced budget requirement, both at and off the equilibrium. Let s = (s 1 , s 2 ) stands for the proÞle of subsidies, and let c i (s) , G (s) denotes the second stage equilibrium decisions; indirect utilities are:

V i (s) = U i (c i (s) , G (s)) .
• Moving backward to the Þrst stage, the subsidy decisions solve for each agent max

s i ∈[0,1] V i (s) .
Danziger and Schnytzer (1991), and [START_REF] Varian | Sequential contributions to public goods[END_REF] have established that, under reasonable assumptions, a subgame perfect Nash equilibrium for public good games with a subsidy stage replicates a Lindahl equilibrium. In symmetric games, this means that s i = s j = 1/2. In our symmetric game, this further means that c i = c j = 30, g i = g j = 20.

Experimental design

As already mentioned, the compensation mechanism and the tax-subsidy mechanism have been tested in laboratory experiments in two different con-

V - g V - G V - U V - 145 Efficiency ? - Y es
texts. Here we want to apply the two mechanisms to the same context in order to compare their performance.

In the setting of a public good game, both the tax-subsidy and the compensation mechanism act on the budget constraint. We recall that in the voluntary provision game the budget constraint is:

c i = y i -g i (2)
In the tax-subsidy mechanism the budget constraint is:

c i = y i -g i + β(g i -g j ) (3)
and in the compensation mechanism it is :

c i = y i -g i + s j g i -s i g j (4)
So we can express the difference among these three situations in terms of how c i , the contribution to the private good, is calculated.

This aspect made the design of the two experiments we ran to investigate the performance of the two mechanims quite straightforward, as we could keep the same instructions, applying changes only for the way the contribution to the private good was calculated. This facilitated both communication to the subjects and their understanding of the consequences of their choice in the two treatments they played 4 . [START_REF] Falkinger | A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence[END_REF] test the practical tractability and effectiveness of the Falkinger mechanism in the same kind of quadratic games, but with different group size, different preferences and different tax-subsidy parameters. Table 1 describes both the experimental game used by [START_REF] Falkinger | A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence[END_REF] -this is referred to as C4 and M4 in their paper -and our modiÞcation. We consider the same parameters for the payoff function, but we deal with only one group size, namely two players. We consider two different values for the parameter β, as we explain more in detail in what follows.

In each experiment participants play two games: a control game, with no mechanism for twenty rounds, and a second game with either mechanism for other twenty rounds.

Thirty subjects took part in the experiment on the compensation mechanism and Þfty-four subjects took part in the experiment on the tax-subsidy mechanism (thirty subjects with a parameter β = 9 19 and twenty-four subjects with β = 1

3 ). We conducted three sessions of each experiment. Participants were divided into groups with two members each and were informed that they would play against the same opponent in the experiment but would never learn with whom they formed a group. The instructions were read aloud to subjects, who, before playing the game at the computer, had to Þll in a questionnaire to check their understanding of the instructions.

Each participant received 50 points as initial endowment and had to decide how to allocate this initial endowment between two activities, one bene-Þcial to both players in the same group (activity A) and the other beneÞcial only to the donor (activity B). Their decision would have consequences in terms of income earned from both activities. Income from activity A would result from the sum of both group members' contributions to A, whereas income from activity B would result from the following formula:

Income from B = 5 × contribution to B - µ 1 20 ¶ × (contribution to B) 2 (5)
Subjects did not need to do any calculations as they were provided with a table listing the level of income from activity B corresponding to any possible value of the contribution to B that the subject could make, from zero to 50. The table also listed the income change if activity B increased by one unit and the income change if activity A increased by one unit, in order to make clear how income changed after an additional unit of contribution to either activity.

Total income would result from the sum of income from activity B and income from activity A. This would give each subject a payoff which is derived from the utility function we used in the section 2:

U i (c i , G) = M i c i - 1 2 N i c 2 i + G (6)
with M i = M = 5, and

N i = N = 0.1.
The total points scored at the end of each experiment were converted into pounds and added to the fee of £ 2.50 which each participant received for showing up. The average payment was £ 10.00. Each experiment lasted two hours.

The software z-tree has been used for programming the experiments.

In the two experiments the payoff was the same for all the subjects in both treatments. The only change between the control treatment and the mechanism treatments was the way we calculated the total contribution to activity B.

In the control game subjects were asked to decide how many points they wanted to contribute to activity A. Their choice would automatically determine the contribution to B, and income from both activities would be calculated by the software. At the end of each period subjects were informed about the contribution of the other group member to activity A, their income from activity A and their income from activity B. From a theoretical point of view, subjects participate to a 20-round repeated game of complete information, where the stage game admits a unique Nash equilibrium (g i , c i ) = [START_REF] Guttman | Understanding collective actions: matching behavior[END_REF]40), and where the subgame perfect Nash equilibrium of the total game is made of 20 repetitions of the static Nash equilibrium.

In the tax-subsidy game we varied the value of the mechanism parameter β. We set it to a value below the optimal level β * = 1 2 , that otherwise would have given multiple solutions to the game. From many voluntary contribution experiments we know that subjects, on average, overcontribute relative to the predicted equilibrium, so we were conÞdent of staying in the predicted equilibrium despite a slightly lower reward/penalty for any discrepancy between players' contribution to the public good. We tried two different values, and Þrst set β equal to 1 3 and then to 9 19 , a value closer to the optimal one. The only difference between the control game and the mechanism game was the way the contribution to activity B was calculated. In the tax-subsidy game the contribution to activity B was split into a direct contribution and an indirect contribution. The direct contribution was as in the control group, corresponding to what remained of the initial endowment after the subject had decided how many points to allocate to activity A. This would be represented by y ig i in expression (3) The indirect contribution was the difference between the two group members' contribution to activity A multiplied by 1 3 or 9 19 , which would correspond to β(g i -g j ) in expression [START_REF] Plott | The Groves-Ledyard mechanism: an experimental study of institutional design[END_REF]. The same table as in the control game could be used to work out the income from activity B for each level of the (total) contribution to B.

Theoretically, this is again a repeated game of complete information, where the subgame perfect Nash equilibrium is the repetition of the unique static Nash equilibrium, i.e. (c i , g i ) = [START_REF] Keser | Voluntary contributions to a public good when partial contribution is a dominant strategy[END_REF]35) for β equal to 1 3 and (c i , g i ) = (19, 31) for β equal to 9 19 .

In the compensation mechanism treatment, subjects were given the option to offer a rate at which to support the other group member in order to encourage him to contribute to activity A. Once players had decided on the rate of support they had to choose how many points to allocate to activity A. In this mechanism treatment the total contribution to activity B was split into a direct contribution and the difference between the other group member's contribution to one's activity B and one's own contribution to the other group member's activity B. As before, the direct contribution was what remained of the initial endowment once the subjects had decided how many points to allocate to activity A. This would correspond to the term y ig i in equation ( 4). The other group member's contribution to one's activity B was calculated by multiplying the rate at which the other group member was willing to support his opponent times his opponent's contribution to activity A. This corresponds to the term s j g i in equation ( 4). One's contribution to the other group member's activity B was calculated by multiplying one's rate of support times the other group member's contribution to activity A. This corresponds to the term s i g j in equation [START_REF] Chen | Dynamic stability of Nash-efficient public goods mechanisms: reconciling theory and experiments[END_REF]. As in the previous experiment the same table as in the control game could be used to work out the income from activity B for each level of the (total) contribution to B.

A subgame perfect equilibrium of each two-stage game is a contribution of 20 to activity A and 30 to activity B, (g i , c i ) = [START_REF] Varian | Sequential contributions to public goods[END_REF]30). And a subgame perfect Nash equilibrium over the 20 rounds is the repetition of this two-stage equilibrium.

In the following section we examine the impact of the mechanisms by comparing the observed behaviour over time in the Control and in the Treatment.

Experimental results of the two experiments

This section evaluates the effectiveness of both incentive schemes. We offer descriptive statistics of the contributions to the public good, results of tests on the effects of the treatments, and we show plots of time series of contributions. Throughout this section, the reported statistic is the "contribution to the public good by pairs of subjects".

Contributions to the public good

Table 2 reports on the descriptive statistic "average sum of contributions", for both parts of each experiment. Data from play of the game by the pairs of subjects are organized into blocks of Þve rounds. In each control of each experiment, the levels of contributions are high. Subjects start at a very high level, close to the Pareto efficient level of 40, and although play moves towards Nash equilibrium, there is still substantial overcontribution after a few rounds of play. In the last Þve rounds, the observed average level is about 20% higher than predicted by theory.

As for the treatment sessions:

1. There is a rapid, large shift in the level of contributions after the mechanisms are introduced. The tax-subsidy mechanism with β = 1 3 produces a jump from around 25 in the last Þve rounds of the control to around 38 in the Þrst Þve rounds of the treatment. With β = 9 19 , the mechanism increases the level from 23 in the last Þve rounds of the control to around 52 of the Þrst Þve rounds of the treatment. For the compensation mechanism, there is a jump from around 24 to around 37.

2. For all blocks, the contributions are higher under the tax-subsidy treatment with high value of β than under the compensation treatment.

3. For the last three blocks, the contributions are higher under the compensation treatment than under the tax-subsidy treatment with low value of β, which itself is characterized by higher contributions than under the control.

4. The sum of contributions under the tax-subsidy mechanism is predicted accurately, after some adjustment, 5. whereas the sum of contributions under the compensation mechanism is predicted inaccurately, even after some adjustment. sum of contributions, the Þgures show the 95% conÞdence interval bounds for the average group sums. To calculate the conÞdence intervals, we used the method of bootstrapping (with N = 1000).

Average contribution and conÞdence bounds over time

We observe movement towards Nash equilibrium under all controls, fast convergence to equilibrium under the treatment with tax-subsidy parameter β = 1 3 and slower convergence to equilibrium under the treatment with β = 9 [START_REF] Hal | A Solution to the Problem of Externalities When Agents Are Well-Informed[END_REF] . In contrast, we do not observe movement towards the predicted value under the compensation mechanism.

Nonparametric tests

This subsection Þrst compares the contributions under the controls in experiments 1a and 1b with the contributions under the control in experiment 2. We conclude that the contributions are similar in the experiments. Then, we assess the effect of each treatment. That is, we compare the contributions under the control with the contributions under the corresponding treatment. Lastly, we compare the contributions under both treatments.

Do we observe similar levels of contributions in the controls? The average sum of contributions in control sessions from experiments 1a and 1b are 29.35 and 28.08, respectively. The average sum of contributions in experiment 2 is 29.92. We use a two-sample Wilcoxon rank-sum (Mann-Whitney) test. The null hypothesis is that the median of the difference of the average sum of contributions under the control in experiments 1a and 1b, denoted ḠN 1 , and the average sum of contributions under the control in experiment 2, denoted ḠN 2 , is zero 5 . The results show that the medians are not statistically different at any level below .59 (with low value of β) and below 0.18 (with high value of β). We conclude that there is no difference between either control of experiment 1 and the control of experiment 2 6 .

Above, the unit of observation was the average of the sum of contributions. That is, with twenty rounds, we calculate twenty statistics i.e. twenty average sums of contributions. Now, let the unit of observation be the sum of contributions of each pair. For instance, with twenty rounds and twelve pairs, we calculate two hundred forty statistics i.e. two hundred forty sums of contributions 7 . With the two-sample Wilcoxon rank-sum (Mann-Whitney) test, Þrst, we Þnd that [P rob > |z|] = .28 when we compare the control of experiment 1 with low value of β with the control of experiment 2; second, we Þnd that [P rob > |z|] = .05 when we compare the control of experiment 1 with high value of β with the control of experiment 2 and, Þnally, we Þnd that [P rob > |z|] = .24 when we compare the controls of experiment 1. We conÞrm our Þndings and we conclude that there is no difference between the controls. 5 The test use as inputs ḠN 1 , the contributions summed over all pairs for each round t = 1, 2, ..., 20 and ḠN 2 , the contributions summed over all pairs for each round t = 1, 2, ..., 20. 6 The medians of the controls of experiment 1 are not statistically different at any level below 0.29. There is no difference between those controls, too. 7 The test use as inputs G N 1 of each pair for each round t = 1, 2, ..., 20 and G N 2 of each pair for each round t = 1, 2, ..., 20.

Does the tax-subsidy mechanism change agents' behavior?

For the chosen value of the tax-subsidy parameter β = 1 3 , theory predicts a level of the public good equal to 30. The sum of contributions averaged over twelve pairs and twenty rounds is 31.63. In the last Þve rounds, the average sum of contributions is 29.00. The median average sum of contributions in the last Þve rounds is 29.33. We conclude that the observations are very close to equilibrium. Does the treatment (with β = 1

3 ) signiÞcantly increase the level of contributions? First, we use a Wilcoxon signed-ranks test. The null hypothesis is that the median of the difference of the average sum of contributions under the control, denoted ḠN 1 , and the average sum of contributions under the treatment, denoted ḠF , is zero 8 . The null hypothesis can be rejected at any level below .09. We conclude that there is a signiÞcant difference between control and treatment over all rounds.

Second, we use a bootstrap test 9 . The null hypothesis is that the level of the public good is identical in the control and the treatment sessions. Using a 5 % level of signiÞcance, we can reject the hypothesis on data from rounds 11-15 and data from rounds 16-20. More precisely, from the resulting data:

• in rounds 1 -5, the difference difference between the contributions in the treatment and the contribution in the control is 2.87, with a bias of .02, a standard error of 1.62 and a 95% conÞdence interval of [-.31 6.04].

• in rounds 6 -10, the difference in contributions is 1.30, with a bias of -.10, a standard error of 1.58 and a 95% conÞdence interval of [-1.80 4.40].

• in rounds 11 -15, the difference in contributions is 3.18, with a bias of .00, a standard error of 1.42 and a 95% conÞdence interval of [.39 5.97].

• Þnally, in rounds 16 -20, the difference in contributions is 3.87, with a bias of -.02, a standard error of 1.53 and a 95% conÞdence interval of [.86 6.87].

We conclude that there is a signiÞcant difference between control and treatment in the last ten rounds.

When the tax-subsidy parameter β equals 9 19 , theory predicts a level of the public good equal to 38. The sum of contributions averaged over Þfteen pairs and twenty rounds is 45.25. In the last Þve rounds, the average sum of contributions is 38.97. The median average sum of contributions in the last Þve rounds is 38. [START_REF] Harstad | Implementation of mechanism by processes: public good allocation experiments[END_REF]. We conclude that the observations are close to equilibrium.

Does the treatment (with β = 9 19 ) signiÞcantly increase the level of contributions? First, we use a Wilcoxon signed-ranks test. The null hypothesis is that the median of the difference of the average sum of contributions under the control, denoted ḠN 1 , and the average sum of contributions under the treatment, denoted ḠF , is zero 10 . The null hypothesis can be rejected at any reasonable level (P rob > |z| = .00). We conclude that there is a signiÞcant difference between control and treatment over all rounds.

Second, we use a bootstrap test 11 . The null hypothesis is that the level of the public good is identical in the control and the treatment sessions.

• in rounds 1 -5, the difference between the contributions in the treatment and the contribution in the control is Hence, using a 5% level of signiÞcance, we can reject the hypothesis on data from rounds 1 -5, 6 -10, 11 -15 and 16 -20.

We conclude that there is a signiÞcant difference between control and treatment.

Does the compensation mechanism change agents' behavior?

The predicted level of the public good is 40. The average sum of contributions of Þfteen pairs and twenty rounds is 33.97. In the last Þve rounds, the average sum of contributions is 31.65 and the median average sum of contributions is 33.73.

Does the treatment have an effect? Again, using a Wilcoxon signedranks test, the null hypothesis is that the median of the difference of the average sum of contributions under the control ( ḠN 2 ) and the average sum of contributions under the treatment ( ḠV ) is zero 12 . The results indicate that the medians are not statistically different at any level below .22. On this basis, one may conclude that there is only an insigniÞcant difference between control and treatment over all rounds.

However, a bootstrap test 13 with a 5% level of signiÞcance rejects the null hypothesis that the level of the public good is the same under the control and the treatment on data from the last Þve rounds. SpeciÞcally, we Þnd:

• in rounds 1 -5, the difference in contributions is 1.41, with a bias of -.22, a standard error of 2.36 and a 95% conÞdence interval of [-3.23 6.06].

• in rounds 6 -10, the difference in contributions is 3.63, with a bias of -.06, a standard error of 2.27 and a 95% conÞdence interval of [-.85 8.10].

• In rounds 11 -15, the difference in contributions is 2.59, with a bias of -.02, a standard error of 2.26 and a 95% conÞdence interval of [-1.85 7.02].

• And in rounds 16 -20, the difference in contributions is 7.29, with a bias of -.07, a standard error of 2.11 and a 95% conÞdence interval of [3. 16 11.42].

Hence, we conclude that there is a signiÞcant difference between control and treatment in the last Þve rounds.

Do the two mechanisms have different effects?

Do we observe signiÞcantly different levels of contributions in the two types of treatments? The average sum of contributions in the experiment with taxsubsidy parameters β = 1 3 and β = 9 19 are respectively 32.15 and 45.25. The average sum of contributions in the experiment with compensation option is 33.65.

We use a two-sample Wilcoxon rank-sum (Mann-Whitney) test. The null hypothesis is that the median of the difference of the average sum of contributions under the tax-subsidy mechanism, denoted ḠF , and the average sum of contributions under compensation mechanism, denoted ḠV , is zero 14 . The medians of the tax-subsidy mechanism with low value of β and the compensation mechanism are not statistically different at any level below .27. We conclude that there is only an insigniÞcant difference between treatments.

The medians of the tax-subsidy mechanism with high value of β and the compensation mechanism are statistically different at any reasonable level ([P rob > |z|] = .00). We conclude that there is difference between treatments.

Above, the unit of observation was the average of the sum of contributions. That is, with twenty rounds, we calculate twenty statistics i.e. twenty average sums of contributions. Now, let the unit of observation be the sum of contributions of each pair. For instance, with twenty rounds and twelve pairs, we calculate two hundred forty statistics i.e. two hundred forty sums of contributions 15 . We use the two-sample Wilcoxon rank-sum (Mann-Whitney) test. When we compare the tax-subsidy mechanism with low value of β with the compensation mechanism, we Þnd [P rob > |z|] = .78. When we compare the tax-subsidy mechanism with high value of β with the compensation mechanism, we Þnd [P rob > |z|] = .00. We conÞrm our Þndings and we conclude that there is no difference between the compensation mechanism and the mechanism with low value of the tax-subsidy parameter whereas there is a difference between the compensation mechanism and the mechanism with high value of the tax-subsidy parameter.

Tentative explanations

Two main experimental Þndings surface, that ought to be explained: i) the clear superiority of the tax-subsidy mechanism in its ability to promote cooperation, ii) subjects' decisions converge to the predicted values in the taxsubsidy treatment, whereas there is a lack of convergence under the compensation treatment.

It is tempting to see the Þrst phenomenon as a conÞrmation of the "crowding out" effect mentioned in the introduction, i.e. the compensation is less efficient because it deters any role for social norms in favor of cooperation, while substituting real but weak incentives to depart from freeriding. It should also be mentioned that subjects in the laboratory found the compensation mechanism environment harder to understand, even in this highly stylised public good problem, and the difficulty to devise their optimal strategy is a serious candidate for explaining the phenomenon. Besides, those two explanations might be strongly related, in which case the superiority of "coercion" solutions might be essentially due to their simplicity.

The relative lack of simplicity might also explain why the liberal solution does not seem to converge. Another explanation has to do with the role played by supermodularity properties in learning. Those properties theoretically ensure convergence to the equilibrium under various learning dynamics (see [START_REF] Gazzale | When does learning in games generates convergence to Nash equilibria? The role of supermodularity in an experimental setting[END_REF]). Experimentally it has been conÞrmed that modular or near supermodular mechanism, like Falkinger mechanism 16 , have good convergence properties. The absence or presence of the supermodularity property for the public good game with the compensation mechanism is an open question. The lack of convergence observed in the laboratory suggests that this property might be lacking.

Conclusion

This paper investigates experimentally the relative performance of the taxsubsidy mechanism over the compensation mechanism in a public good problem. To summarize, it provides experimental supportive evidence that: i) the two mechanisms do change agents behaviours in the direction of increased cooperation, ii) for a low value of the tax-subsidy parameter β = 1/3, the changes resulting from the two mechanisms are not signiÞcantly different, iii) however, with a higher value β = 9/19, closer to the one required for efficiency, the mechanisms do have different effects, iv) furthermore, with the tax-subsidy mechanism, theoretical predictions are more accurate and there is convergence, whereas with the compensation mechanism variability is important and convergence is problematic. Points ii), iii) and iv) make a case in favour of the tax-subsidy mechanism: indeed, even with a choice of β which is somehow below its "efficient" level, the performance of the mechanism in terms of promoting cooperation is comparable with that of the compensation mechanism; besides the prediction under the tax-subsidy treatment are more reliable.

The lack of convergence under the compensation treatment might be due to a learning problem. This mechanism is relatively more complex than the tax-subsidy mechanism: there are two decision variables, and backward induction is required. In this respect, adding more rounds would be helpful.

Appendix

Instructions for the tax-subsidy experiment with beta = 9/19. Instructions (Control) You are now taking part in an experiment which has been Þnanced by the Leverhulme Centre for Market and Public Organisation at the Department of Economics, University of Bristol. If you read the following instructions carefully, you can, depending on your decisions, earn a considerable amount of money in addition to the £2.50 you will received anyway. It is therefroe very important that you read these instructions with care. At the end of the experiment all earnings will be added and paid to you in cash.

During the experiment your entire earnings will be calculated in "Points". At the end of the experiment the total amount of Points you have earned will be converted to Pounds at the following rate:

100 Points = $ 0.125
In this experiment there are 12 participants, which are divided into 6 groups with 2 members each. Except us, i.e., the experimenters, no one knows the group composition.

The experiment is divided into 20 periods. In each period you have to make a decision that you have to enter into the computer. During these 20 periods the group composition stays the same. You are, therefore, remaining with the same people in a group for 20 periods, but you will never learn with whom you formed a group.

The instructions which we have distributed to you, are solely for your private information. It is prohibited to communicate with the other participants during the experiment. Should you have any questions, please ask us. If you violate this rule, we will have to exclude you from the experiment and from all payments.

The following pages describe the course of the experiment in detail:

At the beginning of each period each participant gets 50 points, which in the following we call endowment. Your task is to make a decision how to use your endowment. There are two activities for which you can use your endowment: activity A and activity B. These activities result in different incomes which we will explain in more detail below.

At the beginning of each period the following screen will appear:

[Insert screen shot of decision screen, Control] You have to decide how many points you want to contribute to activity A by typing a number between 0 and 50 in the input Þeld. This Þeld can be reached by clicking it with the mouse. As soon as you have decided how many points to contribute to activity A, you have also decided how much your contribution to activity B is, namely, (50 -your contribution to activity A) points.

The current period appears in the top left corner of the screen. In the top right corner you can see how many more seconds remain for you to decide on the distribution of your points. Your decision must be made before the time displayed is 0 seconds. After you have inserted your contribution you have to press the OK-button (with the help of the mouse). As soon as you have pressed the OK-button you cannot revise your decision for the current period anymore. After all members of your group have made their decision, the following income screen will appear. activity B only you earn something. In turn, it also holds that you earn in the same way from the contribution of the other group member to activity A, while you earn nothing from the contribution of the other group members to activity B. The income of each group member from his contributions to activity B is calculated according to the following formula: [START_REF] Varian | Sequential contributions to public goods[END_REF] )×(contribution to activity B) 2 The income from activity B will be calculated for both group members according to the same formula. In the Table your income from activity B is indicated for each level of your contribution to activity B. If your contribution to activity B is 0, for example, then your income from activity B is 0 (see Table ). If your contribution is 25, then you will earn an income of 93.75 points from activity B (see Table ). If your contribution is 50, then you will earn an income from activity B of 125.

Income from activity B = 5×contribution to activity B -( 1
Your income from activity B depends therefore on your contribution to activity B. The other group member earns -in contrast to activity A -nothing from your contribution to activity B.

In the enclosed Table not only your income from the contribution to activity B is listed, but also the income change, if activity B increases by 1 unit, as well as the income change, if activity A increases by 1 unit. As you see (and as already explained above under "Income from activity A") your income from activity A increases always exactly by 1 unit for each additional point you or the other group member contributes to activity A. The income change in activity B, however, is not constant. The income change is smaller, the larger your contribution to activity B already is. Therefore when your contribution to activity B is low (because your contribution to activity A is high) an additional contribution to activity B generates a relatively large additional income from activity B. If, in contrast, your contribution to activity B is high (because your contribution to activity A is low) an additional contribution to activity B generates a relatively low additional income from activity B.

Your total income in a period:

The total income (in points) in a period is Income from activity A + income from activity B At the end of the experiment the total incomes of all periods will be added up and exchanged into Pounds.

Your indirect contribution is now the decisive change in the new experiment. Your indirect contribution to activity B depends on the contribution made by both you and your group member to activity A (!). The indirect contribution is calculated as follows:

Your INDIRECT contribution to activity B = [Your contribution to activity A minus the contribution of the OTHER group member to activity A]×( In general the following holds: if your contribution to activity A has been larger than the contribution of the OTHER group member, then your indirect contribution to activity B is positive. If you have contributed less to activity A than the other group member, then your indirect contribution to activity B is negative. If both members contribute the same amount to activity A, then your indirect contribution is zero. The indirect contribution is calculated according to the same formula for both group members.

Your total contribution to activity B

The total contribution to activity B is the sum of the direct and the indirect contribution to activity B:

Total contribution to activity B = direct contribution + INDIRECT contribution = (50 -contribution to activity A)

+ (your contribution to activity A minus the contribution of the OTHER group member to activity A)×(

How many points you contribute eventually to activity B depends not only on the direct contribution to activity B, but also on how much you have invested relative to the other group member in activity A. Each of your point above the contribution of the other group member, increases your INDIR-ECT contribution to activity B by ( 919 )-points, while each point below the contribution of the other group member decreases your INDIRECT contribution by ( 919 )-points.

At the back of the Table that you have received, the relationships are summarized schematically. Each point that you invest in activity A increases your contribution to activity A by 1 point and decreases the direct contribution to B by 1 point. However, this also increases your contribution to activity A relative to the other group member and therefore also your IN-DIRECT contribution to B increases by 9 19 . Each additional point for activity A therefore decreases the total contribution to B not by 1 point, but only by 10 19 -point. This is the decisive difference to the previous experiment. In the previous experiment, 1 additional point to activity A resulted in a decrease of your contribution to activity B by exactly 1 point. In the new experiment, one additional point for activity A leads to a decrease of the total amount activity B by 10 19 .

If the other group member increases his contribution to activity A by one point, your income from activity A increases by 1 point (see the lower part of the enclosed schematic overview). However, this also leads to a decrease of your indirect contribution to activity B by 9 19 -points since now the other member contributes relatively more to activity A.

Your income from activity B:

The income from activity B is calculated according to the same formula as previously, namely Income from activity B = 5×(total contribution to activity B) -( 1 20 )×(total contribution to activity B) 2

Recall that the total contribution to activity B equals the direct plus indirect contribution to activity B.

In the previous experiment, the total contribution to activity B corresponded to the contribution to activity B. Now there is also the indirect contribution which depends on the contribution of the other group member to activity A. The only change therefore is in the composition of the total contribution to activity B, not the formula itself. Therefore, the enclosed table which you have already used in the previous experiment is still valid.

Your income from activity B depends therefore on your total contributions to activity B. As previously, the other group member -in contrast to activity A -earn nothing from your direct or indirect contribution to activity B.

Your total income in a period:

The total income (in points) in a period is Income from activity A + income from activity B At the end of the experiment the total incomes of all periods will be added up and exchanged into Pounds.

Figures 1 ,

 1 Figures 1, 2 and 3 report the time series of the contributions. The Þgures show the sum of contributions to the public good averaged over either all control groups or all treatment groups. In addition to the average of the

Figure 1 :Figure 2 :Figure 3 :

 123 Figure 1: Sum of contributions and conÞdence bounds; Control and Tax Subsidy mechanism with beta = 1/3

1

  additional token by you to activity A . ↓ & increases contribution decreases the direct contribution increases the INDIRECT to activity A by 1 to activity B by 1 contribution to activity B (your income also by 9 19 -token increases by 1 point) & . decreases the total contribution to activity B by 10 19 -token {generated income change depends on the level of activity B -see Table} If the other group member contributes an additional token to activity A . & increases contribution to decreases your INDIRECT contribution activity A by 1 and your total contribution to activity B (increases also your income by 9 19 -token by 1 point) (generated income changes depend on the level of activity B -see Table)

Table 1 :

 1

		Experimental design
		Falkinger 2000	BFR 2004
	Group size n	4		2
	Parameter M	5		5
	Parameter N	.1		.1
	Endowment y	50
		Benchmark: PG
	c N	40
	g N	10
	G N	40
	U N	160		140
	PG with Tax-Subsidy
	β 3 4 2 β 3 c F 20	1 3 35	1 2	9 19
	g F	30	15
	G F	120	30
	U F	200	143.75 144.95
	Efficiency ?	No
	PG with Compensation
	c

* = (1 -1 n )

Table 2 :

 2 Experimental results: Sum of contributions

		Experiment 1a	Experiment 1b	Experiment 2
		Control Tax-Subsidy Control Tax-Subsidy Control Compen-
			β = 1 3		β = 9 19		sation
	Nash	20	30	20	38	20	40
	Pareto				40
	Rounds 1-5	35.50	38.37	36.48	52.21	35.65	37.07
	Rounds 6-10	29.58	30.88	27.99	47.05	30.51	34.13
	Rounds 11-15 27.18	30.37	24.83	42.75	29.16	31.75
	Rounds 16-20 25.13	29.00	23.03	38.97	24.36	31.65

  For example, if you have contributed 21 points to activity A and the other group member has contributed 40 points, then your indirect contribution is [21 -40] × 9 19 = -19 × 9 19 = -9. Your indirect contribution is then negative. In turn, if you have contributed 40 points to activity A and the other group member has invested 21 points, then your indirect contribution is positive and amounts to [40 -21] × 9 19 = 9 in this case.

	9 19 )

Experimental papers report disappointing performances for Groves-Clarke, Groves-Ledyard and the Walker mechanisms (see respectivelyAttiyeh et al (1999),Harstad and Marrese (1981, 1982),[START_REF] Plott | The Groves-Ledyard mechanism: an experimental study of institutional design[END_REF], and Chen and Tang (1998).

As of March 2004, only four published articles have used this speciÞc quadratic framework with interior dominant strategies for the purpose of experimentation. They are[START_REF] Sefton | Reward structures in public goods experiments[END_REF],[START_REF] Keser | Voluntary contributions to a public good when partial contribution is a dominant strategy[END_REF],[START_REF] Willinger | Framing and cooperation in public good games: an experiment with an interior solution[END_REF], and[START_REF] Falkinger | A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence[END_REF].

[START_REF] Plott | The Groves-Ledyard mechanism: an experimental study of institutional design[END_REF] Actually it has been applied to public good games with linear payoffs in the Þrst part of[START_REF] Falkinger | A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence[END_REF].

The set of instructions for the tax subsidy game with β = 9 19 is included in the Appendix. The full set of instructions is available from the authors upon request.

The test use as inputs ḠN 1 , the contributions summed over all pairs for each round t = 1, 2, ..., 20 and ḠF , the contributions summed over all pairs for each round t = 1, 2, ..., 20.

The test use as inputs G N 1 of each pair and G F of each pair for rounds t = 1, 2, ..., 5 (or t = 6 -10 or t = 11 -15 or t = 16 -20).

The test use as inputs ḠN 1 , the contributions summed over all pairs for each round t = 1, 2, ..., 20 and ḠF , the contributions summed over all pairs for each round t = 1, 2, ..., 20.

The test use as inputs G N 1 of each pair and G F of each pair for rounds t = 1, 2, ..., 5 (or t = 6 -10 or t = 11 -15 or t = 16 -20).

The test use as inputs ḠN 2 , contributions summed over all pairs for each round t = 1, 2, ..., 20 and ḠV , contributions summed over all pairs for each round t = 1, 2, ..., 20.

The test use as inputs ḠN 1 of each pair and ḠF of each pair for each round t = 1, 2, ..., 5 (or 6 -10 or 11 -15 or 16 -20).

The test use as inputs ḠF , contributions summed over all pairs for each round t = 1, 2, ..., 20 and ḠV , contributions summed over all pairs for each round t = 1, 2, ..., 20.

The test use as inputs G F of each pair for each round t = 1, 2, ..., 20 and G V of each pair for each round t = 1, 2, ..., 20.

Supermodularity would obtain for a value of β ≥ 1. See[START_REF] Chen | Dynamic stability of Nash-efficient public goods mechanisms: reconciling theory and experiments[END_REF].

the authors are grateful to the Leverhulme Trust for funding this project through CMPO and to Nick Feltovich for his valuable comments. We would also like to thank Ken Binmore and participants at the CMPO seminar and at the LAMETA internal seminar for helpful discussions.


Enarpri

Katell Le

Hervé Guyomard

Katell

Thematic Network on Trade Agreements and European Agriculture

W

en the Doha Round was undertaken in ovember 2001, non-trade concems (NTCs) were specifically recognised and integrated into the negotiation process, albeit to a limited extent. In a general way, multifunctionality opponents see arguments put forward by the multifunctionality proponents as an attempt by the corresponding countries to resist agricultural trade liberalisation and continue protecting and supporting agriculture. This paper contributes to the debate by considering the broad set of issues associated with the design and implementation of trade, support and multifunctionality policies in the hope providing policy-maker.; with a notion of the issues and the trade -offs involved.

Non-trade concerns and multilateral agricultural negotiations

NTCs in the Uruguay Round

The Uruguay Round Agreement on Agriculture (URAA) was concluded in 1994 and WTO member countries had until 2000-01 to implement it. Although the concrete consequences of the URAA on world agriculture and agricultural support worldwide have only been very modest over the six-year implementation period of 1994-95 to 2000-0 l, ilS significance should not be mderestimated. The move away from open-ended price support in agriculture and the placement of agriculture on the agenda of the CUITent round of multilateral negotiations, the Doha Round [START_REF] Vanzetti | The next round: Game theory and public choice perspectives[END_REF] is of major importance. Of equa1 significance is the definition of a negotiation framework under the forrn of three main areas (market access, export competition and domestic support) 10 deal with agricultural issues. In other words, the Uruguay Round (UR) has resulted, if not in much effective agricultural liberalisation, at least in a framework to build on in the next rounds of agricultural negotiations and in particular in the Doha Round (Swinnen,200 1).

The preamble of the URAA stated that NTCs, including food security and the need to protect the environment, had been taken into account in forrnulating the agreement. Article 20 of the URAA committed WTO member states to pursue the reforrn process. Under the so-called 'built-in agenda', WTO member countries agreed that negotiations for continuing the reforrn ll'ocess would be initiated one year before the end of the implementation period of the URAA with the long-terrn objective of substantial progressive reductions in support and protection while taking into account NTCs. Preliminary talks were incorporated into the broader negotiating agenda set at the 2001 Ministerial Conference in Doha, Qatar. According to Paragraph 13 of the Ministerial Declaration adopted on 14 November 2001, agricultural Hervé Guyomar and KatelJ Le Bns work atl RA-ESR Rennes, France.

::: (Il Y()\l\R& lEBkl'" negotiations aim at substantial improvements in market access, along w ith reducrions of (with a view to phasing out), ail forms of export subsidies and substantial reductions in tradedistorting domestic support. Paragraph 13 explicitly recognises that special and differenrial treatrnent for developing countries shall be an illegral part of ail elements of the agricultural negoriations and that NTCs shall be taken into accounl. According to Paragraph 14, modaliries for the further commitrnents on the agricultural dossier should have been established no later than 31 March 2003, and the agricultural negotiations should be included in the conclusion of the negotiating agenda as a whole, i.e. no later than 1 January 2005 (WTO, 200 1).

Inclusion of commitments on domestic support in the URAA was an important breakdowll, since it explicitly recognised that domestic policies do link to international trade. In practice, the URAA differentiates domestic support policies according to their perceived abilities to impact on production and disrupt trade f1ows.

• Green box policies correspond to domestic farm programmes that are deemed to be minimally trade -distorting and as a result, are exempted from reduction commitments and expenditure limits. Eleven types of green box policies are distinguished, and for each type, specific guidelines defme the eligibility of the programne for the green box. 1 One category refers to decoupled income-support, which is defmed by three main requirements, i.e. (i) clearly defmed eligibility criteria for a fixed base period; (ii) payments not related to the volume of production, prices or factors of production in any year afler the base period; and (iii) no requirement to produce in order to receive payrnents.

• Blue box policies correspond to direct payments under production-limiting Jrogrammes and are also excluded from reduction commitments. To be included in the blue box, direct payrnents must be based on fIXed area and yields, or made on 85"10 or less of the base level of production or in the case of livestock payrnents, made on a fIXed number of head. The US target price'deficiency payment that was in place before 1996 was a blue box prograrn me. The arable area and livestock payments currently in place in the EU are also blue box programmes. Although blue box payrnents can potentially distort trade, they are allowed under the premise that supply-limit criteria partially offset the subsidies' incentives to over-produce and disrupt trade (Burfisher, 2001).

• Amber box policies are defined by 'default '. They correspond to ail the measures that are not classified as green or !:lue. The agreement provides for a 20% reduction of countries' aggregate levels of arnber domestic support during the six-year implementarion period from an agreed base corresponding to the average of the period 1986-88. This commitment applies to the whole of the agricullUral sector rather than to just individual products. In addition, within the arnber box, some programmes can be exempted from reductions if their amounts are considered too small to count. These exemptions are referred to as 'de minimis' exe mptions.

d)l ( \ \ () '\

NTCs in the Doha Round

The negotiating proposais of WTO member countr ies as weil as the various compromise drafts presented by the WTO under the Doha mandate (domestic suppon, expon support, market access). We have moved our domestic policies in the right direction, and we should continue ta do so in the future. We do hope that realism will also prevail over unrealistic expectations in Geneva.

As Mr. Harbinson himself proposes, technical work on expon credits, food aid, special safeguard[s] for developing countries or norrtrade concems must now continue to maintain the dynamic process of the negotiations. We a1sa believe that tariffprefercnces, crucial ta many develaping countries, and the rationale of the domestic suppart classification (the 'boxes ') have ta be funher examined. The EU remains fully committed ta a substantial outcame of the negotiations on agriculture within the parameters of the Doha Declaration.'

A few days later, while regretting that WTO members failed to meet the 31 March 2003 deadline to agree on the modalities for the WTO agriculture negotiations and noting that the EU had done its homework to move the WTO agriculture talks forward, the EU Agriculture Commissioner criticised the notable absence of NTCs in the Harbinson draft: "For societies from Mauritius to Malta, from Bangladesh to Sri Lanka, farming is also about concerns about the environment, food safety, safeguarding the supply of food and protecting the rural way of life. The Doha Declaration clearly states that they have to be an integral part of these negotiations" (European Commission, 2003c).

Although there is still considerable confusion within WTO member states about what is really meant by the terrn 'NTCs' or its synonym 'multifunctionality', ail countries agree that agriculture and agricultural producers provide food and non-food outputs. Sorne non-food outputs are not (or only very panially) valued by market transactions and hence, can be underproduced (in the case of positive non-food outputs) or over-produced (in the case of negative non-food outputs) relative to what society may desire. Multifunctionality proponents claim that production-linked payments are necessary to obtain socially desired non-food benefits because of the jointness relationships between agriculrural production and non-food benefits.

They also argue that countries should have more f1exibility in the design of domestic policy relative to what is currently provided by the provisions of the URAA green box. On the other hand, multifunctionality opponents argue that the CUITent green box provides sufficient f1exibility to address non-food benefits with the least distortions on trade. Multifunctionaliry is not a sufficient basis for continuing to pursue production-linked policies, i.e. tradedistorting policies according to the URAA classification of support policies. In their view, non-food benefits are better addressed through specific instruments directly linked to public goods or positive extemalities (targeting principle) or both4

As noted by [START_REF] Bohman | The use and abuse of multifunctionality, Economie Research Service (ERS), United States Departrnent of Agriculture[END_REF], the WTO (or more precisely, the URAA) does not make judgements about countries' agricultural policy objectives under the condition that the policy instruments inplemented to achieve these objectives have no, or at most minimal, trade distortion effects or effects on production. So far, analysis of policy design for multifunctionaliry has mainly been conceprua~even if the analytical framework developed by the Organisation for Economic Cooperation and Oevelopment (OECO) can be helpful to provide sorne preliminary policy guidance [START_REF] Lankoski | The environmental dimension of multifimctionality: Economic analysis and implications for policy design[END_REF]. According to the OECO ( 2001), the simultaneous analysis of supply and demand aspects of multifunctionality is necessary in order to arrive at appropriate policy guidance for multifunctionaliry. On the supply side, the \ issues are the degree of jointness between the commodiry and mn-commodity outputs and the way this degree of jointness can (or could/should) be modified. After ail, if commodity and non-commodity outputs are non -joint, the latter can be supplied independently of the former.

lbis does not mean that there is no rationale for govemment intervention, in particular if noncommodity outputs are positive/negative extemalities or publiclbad goods, but in that case, domestic NTCs can be pursued largely irrespective of trade considerations. On the demand side, the issues are the extemality and public good aspects of non-commodity outputs (such as problems of their measure and valuation or problems exacerbated by the fact that noncommodity outputs are generally demanded simultaneously). Building on this analytical framework, the three questions to be addressed are thus, according to the OECO (2001):

• "ls there a strong degree of jointness between commodity and non-commodity outputs that can not be altered, for example, by changes in farming practices and technologies or by pursuing lower cost non-agriculrural provision of non-commodiry outputs?"

• "lfso, is there sorne market failure associated with the non-eommodity outputs?"

• "If so, have non-govemmental options (such as market creation or voluntary provision) been explored as the most efficient strategy?"

The OECO clearly recognises that "the information requirements implied by answering this series of questions may be onerous, and that completely unambiguous answers may not always be forthcoming. Availability of information could itself affect policy choices."

1 l Il '\l lU \ 1" \ R R \\ 10 [ /
Multifunetionality as a suffieient basis to pursue trade-distorting agrieultural policies? ln practice, the main question to be answered may thus be expressed as follows: is support to farmers justified as remuneration for the non-marketed services that society expects farmers to provide? An intimately related question is: are trade policies or production-Iinked support policies or bath efficient tools to address TCs?

Multifunctionality opponents do not contest that agricultural producers provide commodity and non-commodity outputs. They also do not contest that countries have the full sovereign right to choose the domestic policy objectives they wish 10 pursue. They only contest the choice Qf.policy instruments used to meet these objectives, rejecting those policy instruments that have significant trade distortion effects.

Trade and domestic support policies can have a negative impact on other countries by increasing domestic production, reducing domestic consumption, increasing export supplies, reducing import demands and depressing world prices. ln addition, insulation of the domestic market transmits domestic supply and demand variability to greater variability in world markets and prices (ABARE, 1999). The welfare enhancing effects of trade liberalisation are often invoked by the opponents of agricultural protection in general and of the multifunctionality argument in particular. For multifunctionality opponents, countries promoting trade policies or production-linked support or bath on a multifunctionality basis are close to their AMS bindings and the multifunctionality argument ultimately amounts to hidden or disguised protectionism [START_REF] Bohman | The use and abuse of multifunctionality, Economie Research Service (ERS), United States Departrnent of Agriculture[END_REF]. 5 They see no reason not to follow the 'standard' policy recommendations, which consist of lening market forces freely determine the level of production, consumption and trade of private goods whi!e simultaneously address ing extemality and public goods provision tbrough targeted policy instruments, decoupled from prcduction of commodity outputs and coupled 10 the provision ofnon-commodity outputs. In other words, trade liberalisation is welfare-improving, provided optimal domestic policies are in place 10 deal with positive and negative extemalities.This assessment of course raises the questions of the identification, measurement and valuation of positive or negarive extemalities.Toputitanotherway.this raises the question of policy design in a second-best world where positive and negative extemalities are very unIikely ta be fullyaddressed, i.e. intemalised.

What lessons can be drawn from economic theory?

Multifunctionality proponents identify tbree main TCs associated with agricultural production, namely food security, the via bility of rural areas, and environmental and natural resource protection. They also state that these three NTCs are not only positive extemalities, but also public goods.

An extemality corresponds to a situation where the action of one economic agent influences either the well-being of another consumer or the production possibilities of another producer in an indirect way, i.e. in a way that is not transmilted by market prices. An extemality can be positive (for example, when the action of an agricultural producer increases the well-being of sorne consumers or decreases production costs of other producers) or negative (for example, when the action of an agricultural producer decreases the well-being of sorne consumers or 5 As noted by Burrell {2002}, the proponents of multifunctionality have cellain characteristics in common: they are developed count ries where agriculture represents a small share of the gross domestic product {GDP} but where agriculture is still the largest land user; agriculturà production is intensive and organised in small to medium-sized family fanns, where agricultural SUPPOll policies are imponant.

increases production costs of other producers). As the economic igent does not reap ail the benefits of positive spillovers and does not support ail the costs associated with negative spillovers, positive e"temalities tend to be under-supplied relative to what society desires and negative e"temalities tend to be over-supplied. There is a market failure owing to the fact that market prices do not include ail the benefits and costs of e"temalities. As a result, there is room and legitimacy for a government intervention in order to enhance positive e"temalities and to reduce negative e"temalities. Pure public goods are defmed by Iwo characteristics: theyare non-rival (consumption of the good by one person does not reduce the consumption available to another person) and non-e"cludable (once the good has been provided to one consumer, it is not possible to prevent other people !Tom consuming it). Ali public goods are e"temalities, but ail e"temalities are not public goods. Furthermore, a public good can increase or decrease the well-being of agents. ln the first case, it is really a public 'good'. ln the second case, it is a public 'bad'.

Identification, measurement and valuation issues

The previous paragraph immediately raises the question of identifying the e"temalities associated with agricultural production. egative side effects associated with agricultural production essentially correspond to environmental effects. They include odour, nutrient runoff, pollution !Tom herbicide and pesticide use, soil erosion, biodiversity loss, wildlife habitat loss, etc. Positive side effects associated with agricultural production include food security (availability of food at the national level and for ail the people within the countr)?, viability of rural communities and positive environmental spillovers such as watershed protection, flood control, soil conservation, biodiversity, wildlife habitat, open space, scenic vistas, etc. Sometimes, they also include 'social' elements such as traditional country life or cultural heritage. Are ail these side effects really e"temalities? If so, are they really associated with agricultural production? [START_REF] Rude | Apprapriate remedies for non-trade eoncerns[END_REF] recognises that these are e"temal effects or public goods stemming !Tom both food security and via bility of rural areas. These are not, however, e"temal effects associated with agricultural production. For Rude, food security is not a positive e"temality associated with agricultural production because the e"temality-generating mechanism lies on the consumption side. Agricultural production is only a substitute for other sources of supply such as imports or stocks. In the same way, although viability of rural areas can be related to agricultural production, it is not an e"temality associated with agricultural production as the e"temality-generating mechanism is employment. Agric ultural employment is only one source of employment in rural areas. Rude pursues this argument by noting that coupled production subsidies are neither appropriate nor effective intervention tools to address food security and the viability of rural areas. [START_REF] Bohman | The use and abuse of multifunctionality, Economie Research Service (ERS), United States Departrnent of Agriculture[END_REF] arrive at the same conclusion. For these authors, "there is a range of policy instruments that are more appropriate ta addressing food security concems than reliance on domestic production through govemment support ID agriculture". They quote public stockholding, support for research, e"tension and training, infrastructure services, temporary or emergency income assistance and domestic food aid. In the same way, the viability of rural areas will be more effieiently addressed by direct intervention rather than trade polieies, or eoupled production subsidies or both. More generally, direct intervention should serve "to upgrade the quality of life in rural areas and help make them attractive to urban-oriented clusters". It partieular, it should ensure that rural areas are not disadvantaged in terms of access to public services and facilities (transportation, communication and education) or in terms of activity location, or bath Of course, multifunctionality proponents reject this analysis and these conclusions arguing, for example, that food security is a by-product of domestic agriculrural production, as the latter provides an insurance against possible supply disruptions, panicularly in times of crisis or war. Sorne multifunctionality proponents go one step funher by adding that "suppon coupled to production seems to be the most efficient way of ensuring a sufficient production level of public goods to the extent that these public goods are joint praducts of the agriculrural production" (Lindland, 1998). Unfonunately, this dlim is not formally demonstrated.

What the previous discussion clearly shows is that there cannot be an unambiguous resolution to the problem of identification (Bredhal et al., 2003). ln that context, cosl-benefit analysis can be of sorne help to choose among alternative regulation mechanisms. This idea implies that it is possible, at least in an approximate way, not only to identify the externality, but also to measure and value il. lt also implies that it is possibe to measure the benefits and costs for bath the generators and the recipients of the externality, including foreign countries. Although economists have developed ways to value externalities, one must imrnediately recognise that valuation poses serious difficulties. As Randall ( 2002) notes, the task required exceeds the scope of previous valuation effons. This problem lead; some economists to recommend the use of 'second-best' approaches, such as cost-effectiveness rankings, to select among alternative policies [START_REF] Bohman | The use and abuse of multifunctionality, Economie Research Service (ERS), United States Departrnent of Agriculture[END_REF].

Extemalities and economic theory

In what follows, we assume that the externalities associated with agriculrural production can be identified, measured and valued. In that context, what lessons can be drawn from economic theory, more precisely from welfare economics theory? Glebe and Latacz-Lohrnann (2003) use a two-country, twocommodity output and one noncommodity output mode~where the non-commodity output corresponds to a positive or negative production externality assocBted with the production of one of the rwo commodity outputs. They use this analytical framework to determine the first-best and the second-best trade and environmental policies, initially from a global point of view (maximisation of world social welfare) and then from a domestic point of view (maximisation of domestic social welfare). Trade policy instruments are restricted to tariffs or subsidies while environmental policy instruments are limited to taxes or subsidies.

Let us first consider the results obtained when the objective function is globa~social-welfare maximisation. These can be summarised as follows:

i The globally optimal, first-best trade policy is free trade, where the environmental externality is fully intemalised using the standard Pigouvian tax or subsidy.

Il. When the trade policy is fixed, i.e. when trade is not free, the globally optimal environmental tax or subsidy differs from the standard Pigouvian instrument, as it should take into account the distonion induced by the trade policy measure.

tlI. In the same way, when the environmental policy is given and different from its Pigouvian value, there is room for a trade policy to take into account the fact that the environmental policy is not necessarily optimal.

Now we consider the results derived under the assurnption that only domestic social welfare is maximised. These can be summarised as follows:

i The domestically optima~first-best policy is a tariff/subsidy on imports/exports to modi/Y the terms of trade effects and a Pigou via n taxlsubsidy in order to fully internalise the environmental externality.

ii. When the trade instrument is predetermined and considered as an exogenous pararneter, the second-best Pigou via n tax/subsidy should take into account the fact that the trade policy is not necessarily optimal.

111. Symmetrically, when the environmental policy is considered as given, the second-best tariff/subsidy on imports/exports should take into accollnt the fact that the environmental policy is not necessarily optimal.

First-best results are well-known. 6 Second-best results are more interesting. They show that free trade is no longer the globally optimal policy when the externality is not fully internalised. Symmetrically, as long as international trade is not fully liberalised, the standard Pigouvia n tax/subsidy does not maximise social welfare because it does not take into account distortion effects induced by the trade policy instrument. These results do not, however, question the fact that free trade is optimal when appropriate domestic polieies are il place to deal with positive and negative externalities, i.e. when externalities are fully internalised. This last result immediately raises the question of the possibility of implementing the first-best poliey, even in this simplified frarnework, with only two eommodity outputs and one noneommodity output.

More generally, it raises the question of the optimality of second-best policies when, for various reasons, the fust-best policy cannot be implemented. A well-known result of the seeond-best theo!)' is that as long as there are distortions in an economy, any anempt to address one partieular restriction may in fact reduee social welfare. Applied to the multifunctionality issue, this result means that as long as trade and production distorting agricultural polieies remain, any anempt to fix the negative/positive externality problem by a taxlsubsidy or another regulation may in faet (at least theoretieally) reduee social welfare. The reverse also applies. As long as agrieultural positive/negative externalities remain unresolved or only partially and irnperfeetly resolved, agrieultural trade poliey reforms may (at least theoretieally) reduee social welfare. From a political point of view, this analysis also raises the question of the sequeneing of reforms, if for various reasons (political reasons in particular), ail necessary reforms from a theoretieal point of view eannot be simultaneously implemented. This can be summarised by the following sentence quoted from Burrell (2001): ''should trade be liberalised first before optimal policies to internalise externalities are in place or should trade reform wait for optimal polieies to proteet for the provision of positive externalities [as weil as the reduetion ofnegative externalities]". [START_REF] Paarlberg | Multifunctionality and agriculturaltrade negotiations[END_REF] eonfirm the Glebe and LatacèLohmann results by showing that multifunctionality never justifies trade polieies. They assume that agrieultural production generates the non-market outputs that society values. The home country soeial-utility funetion depends thus on the eonsumption of one non-agrieultural composite good (the numéraire), the consumption of the various agricultural goods and externalities (E), j from 1 to k) linked to agricultural outputs (g;, i from 1 to n). They assume that eaeh externality increases social welfare, but the effeet of a particular agricultural output on the various externalities is not restricted in sign. Several conclusions ean be derived from first-order conditions that define the Pareto outcome (maximisation of domestic soeia 1welfare).

• First, the presence of externalities in the domestic social utility function does not free justifY trade policies. International market power is the only justification for a non-zero trade policy. As a result, for a small country, which cannot affect world priees, there is no room for trade policies and free trade is the optimal outcome.

• Second, externalities linked to agricultural outputs justifY a priee wedge between the marginal rate of substitution in consumption and the marginal rate of transformation for the various agricultural products. This result is obtained without imposing a fixed relationship between one agricultural output and one particular externality.

• Third, policy alternatives can be ranked. In the small country case, these can be ordered as follows: 1) firs~best, producer subsidies or taxes reflecting the domestic extemalities combined with trade; 2) second-best, no producer interventions combined with free trade; and 3) third-best, trade intervention only. In the large country case, these can be ranked as follows: 1) first-best, producer subsidies or taxes refJecting the domestic extemalities combined with trade interventions arising from the nation's international market power; 2) second-best, trade interventions only; and 3) third-best, no producer interventions combined with free trade.

• Fourth, interventions are country-specifie because extemality valuation is countryspecifie. As a result, optimal interventions will be at different levels in each country.

In addition, Paarlberg et al. define a strategy to 'practically' address agricultural extemalities in WTO negotiations. The strategy they propose mimics the approach adopted in the UR on the domestic support dossier, by following a three-step approach: the definition of a conceptual frarnework (the AMS); multilateral negotiations on policies to be included in this support measure; and agreement on reduction commitrnents. For dealing with multifunctionality in WTü negotiations, they also propose a three-step approach consisting in, first, the identification of externalities associated with agricultural production, second, the valuation of these externalities and third, the measurement of the specifie linkage between each extemality and each agricultural output.' They argue that "payments determined this way would be counted as green box even if production-related'. Il is clear that such a strategy will be very difficult to implement in practice. As shown in the previous section, there is c1early no consensus among countries àlout the definition of the positive or negative extemalities associated with agricultural production. Valuation is difficult and controversial, as weil as the measurement of the relationship between one specifie externality and agricultural production.

Fullerton (200 1) develops a very simple analytical framework that can be used to compare efficiency (measured here in terms of the optimal amount of pollution) and distributional effects of eight types of environmental policies, including command and control (CAC) instruments as weil as incentive instruments. He shows that the eight instruments can be designed to have the same efficiency effects but that they have very different distributional consequences. The model used by Fullerton corresponds to a c10sed economy. Nevertheless, his main conc lusion (in reality, a very well-known result) immediately relates to the case of an open economy: different environmental policies can be used to achieve the same results on pollution, but they generally differ in terms of distributional effects. This conclusion raises two questions in the context of the debate on trade-multifunctionality interactions and the various instruments that can be used to address NTCs. The first is that agricultural trade reform is welfare-improving for each participant in each country only if there are compensating transfers from gainers to losers. The second is that Fullerton's conclusion, more generally the optimality of free trade (providing that optimal domestic policies are in place to deal with NTCs), rests on several assumptions, in particular one time period, perfect certainty, perfect competition and no transaction costs. In that context, the second part of Fullerton's paper is particularly interesting sinee il discusses other criteria ootside the simple models that have to be taken into account for further evaluation of policy choices. These criteria include: i economic efficiency measurement (Fullerton measures economic efficiency in tenns of the optimal amount of pollution while economic efficiency also requires minimising the cost of achieving the optimal abatement);

11.

administrative efficiency (minimising administrative costs to government and compliance costs to firms and taxpayers);

111. monitoring and enforeement (measurement of the regulated pollutant in a way that discourages evasion);

IV. information and uncertainty (characterisation of efficient policy in an imperfect world with information asymmetry and uncertainty);

v. political and ethical considerations, in particular political feasibility;

VI.

equity and distributional effects (net effects on different demographic categories, for example young and old, rural and urban or rich and poor);

Vll. crher distortions, in particular because markets are far from being perfecç and

VlI1. tlexibility and dynamic adjllstrnents. This point is particularly relevant in the context of trade-multifunctionality interactions. It relates to the 'tlexibility' criterion, i.e. the tlexibility of the government to adjust policy rules as information, measurement and valuation improve as weil as the tlexibility of the economy to adjust production of commodity and non-commodity outputs.

Conclusion

From the previous discussion, it is possible to surnmarise as follows what economic analysis says about first-best and second-best policies when governments are welfare-maximising and there is perfect information and competition. Provided corrective policies properly intemalise positive and negative extemalities, trade liberalisation benefits ail countries. If externalilies are not adequately addressed, trade liberalisation may not beneficial to some countries but even in this case, which corresponds to reality, trade policies are unlikely to be second-best ways of dealing with positive or negative externalilies (Sturm and Ulph, 2002). According to the policy-targeting principle, NTCs associated with agricultural production should ideally be addressed through specifie, i.e. targeted instruments. Even in this ideal world, such as in a flfSt-best context, policies used to address TCs are likely te be country-specific, retlecting differenees in preferences among countries.

These normative conclusions rest on several assumptions. ln particular, in the context of the multifunctionality dossier, they rest on the assumptions that there is an unambiguous identification of externalities associated with agricultural production and that these externalities can be properly measured and valued. Assigning monetary values to externalities is necessary to assess the full costs and benefits of trade policy refonns, as weil as domestic policy refonns or corrective mechanisms aiming at decreasing extemal effects or increasing the provision of amenities. Yet one must clearly recognise that research on this point is still in Quantitative analyses should be developed to assess the potential impacts of agriculrural policy refonns on NTCs and inversely, the potential impacts of 'multifunctionality' policies on agriculrural production and trade. Cooper et al. did this exercise for the United States by first evaluating the environmental effects in the US of a trade liberalisation scenario involving the elimination of ail agriculrural policy distortions in ail trading countries [START_REF] Cooper | Effects of agri-environmental payment policies on agricultural trade[END_REF], then by quantifying the effects of US agr~environmental rayment policies on US agriculrural trade (Cooper, Johansson and Peters, 2003b). Many environmental effects, however, are not included in these analyses. More generally, they do not consider other aspects of multifunctionality related to food security and rural development.

8 The second analysis shows in particular that US agri-environmental programmes have very small effects on trade. In other words, they are minimally trade-distorting and hence can rightfully be considered as green box measures.

  the early stages. As a result, nonnative research must be completed by positive approaches.

imbalances remain. We have tabled substantial and ambitious proposaIs on ail items

  Secretariat in February 2003, March 2003 or August 2003 adop",d the URAA framework. ln a general way, they include specifie commitments on market access, expon competition and domestic suppon. On the domestic suppon dossier, the second draft paper on the modalities for the funher commodities presented by the WTO Secretariat in March 2003 (the so-called 'Harbins on 2' paper) proposes:• a 6(11/0 eut in the ~gregate measure of suppon (AMS) for amber box policies over five years, w ith all amber box suppon continuing to be aggregated for all products as under the

	Uruguay Round;
	• e ither a 50% reduction of the blue box suppon over five years or the abolition of the blue
	box by including ail suppon of the blue box in the country AMS; and
	• the retention of the green box, but with a tightening of conditions for including payments
	into the green box. These tightened conditions mainly relate to compensation criteria
	corresponding ta govennment panicipation in income insurance and income safety-net
	programmes, payments for relief !Tom natural disasters, resource retirement programmes
	and structural adjustment assistance. In addition, the draft compromise expands the scope
	of paragraph 12 of Annex 2 of the URAA (payments under environmental programmes)
	by explicitly including animal welfare programnes.
	European Union (EU) Agriculture Commissioner Franz Fischler and EU Trade Commissioner
	Pascal Lamy reacted to this paper as follows:
	We fully appreciate Mr. Harbinson's et'fons. But we do not see this draft as bringing the
	WTO Members closer. Harbinson 2 is largely identical to the first draft. Severe

The e1even categories are 1) general services;

2) public stock holding for food security purposes; 3) domestÎc food aid; 4) decoupled incorne suPPOrt; 5) govemment financial participation in incorne il1surance and incorne safety•net programmes; 6) disaster payrnents; 7) producer retirement schemes; 8) resource retirement schemes; 9) investment aids; 10) environmental payments; and Il) regional assistance.2 Amber box support reduction commitments are 13.3% for developing countries.

See European Commission (2003b)

On this point, see OECO (2001), Paarlberg et al. (2002), Burrell (2002) or Lankoski (2003).

Sec, for example,[START_REF] Krutilla | Environmental regulalion in an open economy[END_REF], who shows that În the large country case, the optimal trade poliey is împosed to reflect international market power, while a tax is levied to correct the pollution extemality.

1n a more recent paper, Bredhal et al. (2003) provide further discussion on these three steps (conditions), Le, issues of identification, measurement and valuation, and the linkage to output.

ABOUT ENARPRI

ENARPRI is a network of European agricultural and rural policy research institutes formed for the purpose of assessing the impact of regional, bilateral and multilateral trade agreements concluded by the European Union or currently under negotiation, including agreements under the WTO, EU accession, Everything But Arms (EBA), EuroMed and Mercosur. It also addresses the wider issues of the multifunctional model of European agriculture and sustainable development of rural areas. Participants in the project include leading national institutes and research teams from 13 countries (11 EU member states and 2 accession countries).

AIMS

• Creation of an institutional structure linking key research institutes with major benefits for improved exchange of information and policy analysis both in the short and long run, • Development of improved tools for impact assessment, • More effective impact assessment of trade agreements on a variety of important social, economic, and environmental indicators and an assessment of multifunctionality, and • Clearer analysis ofthe need for EU policy adjustrnents.


Obtaining a unique, efficient norm through negotiation by linking proposals

Nicolas Quérou