Optimal Policy for Organic Farming Conversion

This paper determines the optimal subsidy for organic conversion distributed by a regulator to farmers under adverse selection. We consider that a farmer is characterized by an intrinsic motivation about organic farming that is private information. We find that the optimal subsidy is constant along the farmers' revenue. As the gap between profits in organic and traditional farming narrows, the optimal subsidy should decrease. While promoting organic farming to improve its acceptability for society has a positive influence on the proportion of land converted, we show that promoting both organic farming among farmers and the demand for organic products has ambiguous effects that can lead to a decrease in the number of conversions.