In the 2000 Common Agricultural Policy (CAP) reform, Pillar II of the CAP was created explicitly to promote the production of environmental outputs, such as biodiversity and landscape amenities. In the European Union (EU) New Member States (NMSs), subsistence and semi-subsistence farms coexist with larger commercially orientated farms. Due to the high number of subsistence and semi- subsistence farms in these countries, new measures in the CAP Pillar II have been developed with the aim of increasing the market integration and competitiveness of these farms. Given the apparent resilience of subsistence agriculture and the policy goal of rapid commercialisation, an assessment of the comparative provision of environmental outputs is timely. The possible environmental effects of an increase in the market integration of agricultural households are studied in this thesis. The methodology employed includes two key stages. In the first stage, an environmental efficiency score for each agricultural' household is estimated using Data Envelopment Analysis (DEA). Since there is no price information about the environmental output, an input distance function approach is employed to characterise the multi-output technology used by each agricultural household in the sample. The environmental efficiency is calculated by decomposing the multi-output efficiency into pure technical efficiency (the efficiency to produce the marketable output) and the efficiency related to the production of environmental outputs. In the second stage, the environmental efficiency scores are regressed on several household characteristics, physical and human capital variables, and, most importantly, an index designed to capture the degree of market integration of each holding. The data used in the empirical analysis were collected through a detailed survey of agricultural households conducted in three NMSs (Bulgaria, Poland and Romania) carried out as part of the EU FP6 SCARLED project (STREP Contract No. SSPE-CT-2006- 0044201). The data included responses from a wide range of household types from fully subsistence producers to commercial farm operations.