Farmer decisions with regard to production and land use are strongly influenced by socio-economic factors. In the developed world, the role of agricultural subsidies, quotas and guaranteed prices is especially important. In the past there have been many examples of economic signals which led to unfortunate and unforeseen environmental consequences ('perverse subsidies'), including soil erosion. The problems were neglected because of an emphasis on increases in productivity and the fact that many of the costs were hidden or were external to the farm and were borne by society. In recent years 'agri-environmental measures' have begun to reverse the trend towards environmental degradation. (C) 2003 Elsevier Science Ltd. All rights reserved.