Analysing Dutch dairy farmer behaviour towards the provision of public goods: The added value of an economic simulation experiment

• Adequate financial compensation is important in providing public goods.
• Supply of public goods is higher if they fit well in the current farming strategy.
• Transition to flat rate payments reduces the income of Dutch dairy farmers.
• Economic simulation experiments are more flexible than neoclassical economic models.
• Experimental economics allows for heterogeneity among farmers.

The objective of this paper is to examine the value of experiments for assessing the impact of the proposed Common Agricultural Policy of 2013 on farm income and farming strategies. We focus specifically on the impact of an alternative direct payment system based on a flat rate and green payments. We show the added value of an economic simulation experiment to existing economic micro- and sector modeling analysis when analyzing farmer behavior. It is shown that the suitability of and rewards for the provision of green services play a significant role in their uptake by farmers and the support for them. These results are useful in implementing a revised direct payments system in the Netherlands for the future.