A socio-economic analysis is required that not only considers the private costs and benefits of production and consumption,but that also focuses on the externalities in production and consumption, i.e.the unintended negative impacts on the production and production possibilities of other consumers or producers. These negative externalities include pollutionof water, soil and air and the negative impacts on nature and biodiversity.
To compensate for these externalities policymakers can award actions by providing subsidies or (in many cases even better) they can punish non-sustainable behaviour by imposing pollution taxes or by introducing tradable pollution permit systems, according to the polluter pays principle. In this project the established economic agro-food models (i.e. MAGNET) will be extended with the dimension of water to get hold of the water-food nexus. In this way water becomes a production factor including a price and policies to include externalities can be designed and quantified. In the first year a literature review will be performed and a conceptual model will be developed.