In point A of figure 4, NC = 0 for both public goods, which means that no support is given. In
this case, almost no public goods are produced. This reflects the fact that the Norwegian agriculture is
unprofitable at world market prices. The points marked B in figure 4, give NC that corresponds to a
level equal to 1 for each public good. These numbers are equal to the reported budget support in
column 2 and 3 of Table 2. Finally, C reports NC for the levels of public goods in the base solution.
Not surprisingly, the achieved levels of public goods are high in the base solution. The index for
landscape preservation is 131% higher that the level reported in column 2, while the level of food security
overshoots the needs derived from the crisis menu, reported in column 3, by 90%. Also, the costs exceed
the amounts in point B by about 160%. Thus, it seems clear that the present high level of support only to
a minor degree can be defended by the public good argument.
Figure 4. Net stand alone costs (NC) of landscape preservation and food
security
NC(FS)
—B-NC(LP)
Look at figure 5. Observe that the IC curves start to rise at FS = 0.37 and LP = 1.33,
respectively. For each public good, this is the level that follows as a by-product, without extra costs, of
1 unit of the other public good. It can be seen that the IC of elevating the level of landscape
preservation when complete food security is assumed, is quite low. For example, only 0.6 billion NOK
is required to raise the level of landscape preservation to the optimal level indicated in column 4 (LP =
1.49). This owes to the fact that preservation of agricultural land is a major component of both
landscape preservation and food security. The IC is higher for food security, especially for high levels
of food security (λ > 1), since food security requires more production and agricultural employment
compared to the landscape preservation case.
Naturally, the low incremental costs for landscape preservation are due to strong cost-
complementarities, or economies of scope, between the public goods in question. An indicator on the
degree of cost-complementarities was presented in equation (6). Below, this indicator is evaluated for
the optimal solution in column 4:
NC(LM=1)+NC(LLP=1.49)-NC(LM=1)-IC(LLP=1.49) 5.587 - 0.598
82.5%
c = 100----------------—τ,----------τ⅛-----=--------------= = 100------------
NC(LM = 1)+IC(LLP= 1.49) 5.449 + 0.598
Observe, that in this case the cost of joint production is: NC(LM = 1) + IC(LLP= 1.49) , while the sum
of stand alone costs are: NC(LM = 1) + NC(LLP= 1.49) . The corresponding values can be found in
figure 4 and 5.
As can be seen, the percentage extra costs of producing optimal levels of the two public goods
separately compared to joint production, is more than 80%, which indicates that the cost
complementarities are high.