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On the optimal design of income support and agri-environmental regulation

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Author Info
Bontems, Philippe
Abstract

In this paper, we develop a model of regulation for a set of heterogenous farmers whose production yields to environmental externalities. The goal of the regulator is first to offer some income support depending on collective preferences towards income redistribution and second to internalize externalities. The optimal policy is constrained by the information available. We first consider the second best where the regulator is able to observe all individuals decisions in terms of inputs and individual profit, but not the individual farming labor supply. We characterized the generalized transfer in function of the desire to redistribute and the underlying characteristics of the production process. In a second step, we assume that the regulator has only information on aggregate consumption of inputs and hence can only tax/subsidy linearly inputs and output. However, because the accounting profit remains observable, a non linear transfer of profit is still part of the optimal policy. In the last part of the paper, we endogenize the market price of land and examine how the optimal policy should be modified.

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Publisher Info
Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6246.

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Date of creation: 2008
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Handle: RePEc:ags:aaea08:6246

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Related research
Keywords: asymmetric information; agricultural policy; agri-environmental policy; income support; Agricultural and Food Policy; Environmental Economics and Policy; Q18; Q12; Q58;

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  1. JunJie Wu & Bruce A. Babcock, 1995. "Optimal Design of a Voluntary Green Payment Program Under Asymmetric Information," Center for Agricultural and Rural Development (CARD) Publications 95-wp131, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
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  2. Hueth, Brent, 2002. "The Goals of U.S. Agricultural Policy: A Mechanism Design Approach," Staff General Research Papers 5038, Iowa State University, Department of Economics.
  3. Bourgeon, Jean-Marc & Chambers, Robert G, 2000. " Stop-and-Go Agricultural Policies," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 82(1), pages 1-13, February. [Downloadable!] (restricted)
  4. Robert Innes, 2003. "Stop and Go Agricultural Policies with a Land Market," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(1), pages 198-215, 02. [Downloadable!] (restricted)
  5. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December. [Downloadable!] (restricted)
  6. Sheriff, Glenn, 2008. "Optimal environmental regulation of politically influential sectors with asymmetric information," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 72-89, January. [Downloadable!] (restricted)
  7. Hongli Feng, 2007. "Green Payments and Dual Policy Goals," Center for Agricultural and Rural Development (CARD) Publications 02-wp304, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
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