Counterfactual approach for assessing agri-environmental policy: The case of the Finnish water protection policy

This paper applies counterfactual approach to assess the impacts of agri-environmental programs. We focus on ex-post policy evaluation in a case where the control group is de facto non-existent and treatment group covers the whole population. We employ a theoretical framework based on profit maximization and the interlinkages between the behavior of agents and the response of environmental systems to the economic decisions. Optimization in the absence of policies produces the control case, while optimization under the policies fits to the treatment case. We apply our model to assess the performance of the Finnish Agri-Environmental Programme to reduce agricultural nutrient runoff to the Baltic Sea. We demonstrate that the Finnish Agri-Environmental Programme does not achieve its goals, because it fails to anticipate farmers’ responses to incentives created by the Common Agricultural Policy and the Agri-Environmental Programme itself. The social cost-benefit analysis of the Programme shows negative net benefits.