Rural development and welfare implications of CAP reforms

Common Agricultural Policy (CAP) has been evolving from a sectoral policy of farm commodity support into an integrated policy for rural development and environmental enhancement. Rural development policy is closely linked to two concepts: diversity (multifunctionality) and sustainability as achieving optimal diversity at community level is a key in the rural development problem. In this paper rural development at community level and the impact of support redistribution, resulting from recent CAP reforms, are analyzed in the framework of privately provided public goods. It is shown that CAP support redistribution can importantly impact rural community development and household welfare, conditional on households’ technology (opportunity costs) of contributing to development, their current levels of contribution, and the form of community development function.