Measuring External Effects of Agricultural Production: An Application for the Netherlands

Although the external effects of agricultural production receive considerable attention, the measurement of these effects is not well developed. In this paper, after introducing a theoretical approach, the methodology is applied to the Netherlands. The method used requires information about the quantities and the shadow prices of external effects. Different approaches were used to derive these shadow prices. Although many uncertainties still exist, incorporating the environmental effects of agricultural production reduces the gross value added by about 5-15 percent. Internalizing these external effects gives producers the opportunity to adjust inputs, output, and technology. It can thus be considered as a maximum effect