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

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  • 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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Bibliographic 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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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. Bontems, Philippe & Rotillon, Gilles & Turpin, Nadine, 2005. "Acceptable Reforms of Agri-Environmental Policies," 2005 Annual meeting, July 24-27, Providence, RI 19150, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Chantal Le Mouel, 2004. "Impacts of alternative agricultural income support schemes on multiple policy goals," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 125-148, June.
  3. Wu, JunJie & Babcock, Bruce A., 1995. "Optimal Design of a Voluntary Green Payment Program Under Asymmetric Information," Staff General Research Papers 843, Iowa State University, Department of Economics.
  4. Robert Innes, 2003. "Stop and Go Agricultural Policies with a Land Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 198-215.
  5. 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.
  6. Feng, Hongli, 2007. "Green payments and dual policy goals," Journal of Environmental Economics and Management, Elsevier, vol. 54(3), pages 323-335, November.
  7. Hueth, Brent, 1999. "The Goals of U.S. Agricultural Policy: A Mechanism Design Approach," Staff General Research Papers 5038, Iowa State University, Department of Economics.
  8. Jean-Marc Bourgeon & Robert G. Chambers, 2000. "Stop-and-Go Agricultural Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 1-13.
  9. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
  10. Philippe Bontems & Gilles Rotillon & Nadine Turpin, 2005. "Self-Selecting Agri-environmental Policieswith an Application to the Don Watershed," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(3), pages 275-301, 07.
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