CAP regime shifts, institutional quality, and technical efficiency in agricultural land use across the EU: A panel stochastic frontier analysis

This study examines how Common Agricultural Policy (CAP) payment intensity and national governance quality jointly shape technical efficiency in agricultural land use. The sample covers the 27 EU member states over 2005–2022, giving 486 balanced observations. We estimate a per-hectare panel stochastic frontier model. Per-hectare normalisation lowers the maximum variance inflation factor from 14.98 to 3.25. CAP payment intensity is the inverse hyperbolic sine of the implicit subsidy per hectare of utilised agricultural area (UAA). This measure correlates with directly reported product subsidies at r = 0.9994. The governance interaction is the central result. The CAP × WGI term is positive and significant across pooled, event-study, Mundlak, control-function, and no-dummy specifications (δ₃ between +0.008 and +0.018, p < 0.001 in five of six specifications). The stand-alone CAP effect weakens when subsidies are removed from the dependent variable, so we report it as secondary. A latent class model identifies two production technologies. Capital elasticity is positive in both classes, which resolves the negative aggregate capital coefficient. Efficiency rankings shift across specifications (Spearman ρ ≈ 0.4 between pooled and panel estimates), so we treat country rankings as indicative. The marginal CAP effect on inefficiency changes sign near a governance z-score of about 0.87. We interpret all results as conditional associations. They support governance-aware targeting of CAP payments rather than a prescriptive redesign.