Optimal Regulation Under Asymmetric Information And Risk Aversion With An Application To Pollution Control
AbstractWe consider a general model of regulation for a risk-averse agent who observes her private-information parameter after the contract is signed. The latter specifies a quota for input used in production, whose decomposition among different production stages is unknown to the regulator. We characterize the optimal solution to the regulator problem, under general assumptions on net expected social surplus and the agent utility function. We apply the model to the case of pollution control by an environmental agency, where the agent is a risk-averse farmer facing production risk because of nitrogen leaching, and the private-information parameter measures the soil capacity in retaining nitrogen. The farmer sequential decision model is estimated on French crop production data and the results are then used to calibrate and simulate the optimal contract.
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Bibliographic InfoPaper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2001 Annual meeting, August 5-8, Chicago, IL with number 20727.
Date of creation: 2001
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