This paper extends previous empirical studies of the environmental Kuznets curve by examining the role of rising incomes in promoting development of new technologies directed toward environmental improvements. The main result, based on an analysis of data from 19 OECD countries for the period 1980-94, shows that the income elasticity of public research and development funding for environmental protection is positive, and may be close to unity. This finding suggests that emissions of at least some pollutants may decline with income after a threshold level of income is reached. However, this should be interpreted cautiously in light of: (1) the small size of public research and development funding relative to overall spending on environmental protection, (2) the ability of a country to substitute between public and private research and development expenditures, as well as among alternative policy instruments, and (3) the possibility that public research and development funding may be a form of industrial subsidy in some countries.

Abstract. The paper focuses on farm-level nitrogen fertilization strategies of Dutch arable farmers for analyzing the substitution of organic fertilizers (manure) with chemical fertilizers. The model developed investigates the impact of the major parameters affecting the inferiority of manure compared with chemical fertilizers, including the low availability and non-uniformity of the nitrogen in manure, and the low level and high non-uniformity of plant-available nitrogen supplied via manure. The sensitivity of the optimal fertilization decisions and its associated environmental impact to product price, manure cost, and environmental tax is also examined. The theoretical analysis is applied to a representative Dutch grower of ware potatoes in the northern part of the Netherlands. The results suggest that in the absence of a subsidy the representative farmer will prefer to apply nitrogen only via chemical fertilizers.

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The new Rural Development Regulation of the EU reflects the shift of attention within rural areas from agricultural production towards rural development and embraces both, farmers and non-farm residents. While agricultural production is required to comply with environmental standards, rural areas also have to fulfil the growing demand for landscape, outdoor recreation and wildlife conservation. This paper develops a model of a rural area where farmers and non-farm residents live together. A central government uses a combination of two-policy instruments--direct compensation payments and public services --aimed at encouraging farmers to adopt environmentally beneficial practices and at the same time to increase the provision of country-side amenities and the sustained vitality of the rural area. The optimal mix of the policy instruments is evaluated under various governmental objectives. The analysis suggests that a combination of direct payments to farmers with the supply of local public services is a promising tool for rural policy development initiatives in the EU.