A necessary condition for agriculture to provide environmental public goods at the level desired by the society is the existence and compliance with appropriate "rules of the game" (institutions). Undoubtedly, institutions are of fundamental importance for agriculture in areas with natural or other specific constraints (ANCs), the new delimitation of which was recommended by the European Commission to all EU member states under the CAP 2014-2020 and which is valid under the CAP 2023-2027. The aim of the study is to indicate the role of institutions in the new institutional economics (NIE) approach in the context of supporting agriculture in ANCs. The specific goals consist of indicating a method for determining the current ANCs in the EU, including Poland; characterizing their current state in Poland, as compared to other EU countries; determining their role in the implementation of the agri-environment-climate (AECM) and organic farming measure under the EU CAP (they are particularly predestined to provide environmental public goods) and also specify the determinants encouraging farmers in ANCs to participate in these measures; assessing the production and economic situation of agriculture in these areas in individual EU countries. The data source was data from the Institute of Soil Science and Plant Cultivation-State Research Institute in Pulawy and the Institute of Agricultural and Food Economics-National Research Institute, Agency for Restructuring and Modernization of Agriculture, European Commission FADN-FSDN. Descriptive methods were used to analyze and present the materials. Tabular graphic logistic regression model, the Wald test, the Cox-Snell pseudo-R2 measure and its additional variant proposed by Nagelkerke were used. The study is intended to fill the research gap regarding the determination of the ability of agriculture in ANCs to reconcile the market function, which is reflected in its economic situation, with the provision of environmental public goods to the society. It was determined that in communes with a high saturation of lowland ANCs, farms achieving worse production results in the form of lower wheat yields and lower net income calculated without subsidies per 1 ha of utilized agricultural area (UAA) had a greater tendency to implement AECM and organic farming measure. In most EU countries, agriculture in ANCs is characterized by extensification of agricultural production compared to other agriculture. It generally incurs lower costs and, as a result, obtains lower production effects and income from agricultural activities per 1 ha of UAA. The study provides arguments supporting the thesis that for agriculture in ANCs to achieve satisfactory economic effects and at the same time be able to provide the public with environmental public goods to a wide extent, it is necessary to have public financial incentives in the form of subsidies from the EU CAP.
