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Agri-environment Policy Design With Hidden Information and Hidden Action: Input Quotas vs Input Charges

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  • Ozanne, Adam
  • White, Benedict

Abstract

Moxey, White and Ozanne (1999) have shown how transfer payments coupled with input quotas can be used to design optimal truth-telling mechanisms for voluntary agri-environmental schemes under hidden information about compliance costs. Ozanne, Hogan and Colman (2001) adapted the Moxey et al. model to analyze hidden action in such schemes, analyzing the relationships between input abatement, the cost of monitoring compliance and farmers’ risk preferences. White (2002) extended the Moxey et al. model to analyze the design of contracts under both hidden action and hidden information, but used an input charge/transfer payment approach rather than the original input quota/transfer payment one. In addition, he assumed that farmers caught cheating face a variable fine, related to the amount of input they apply in excess of the amount agreed in the contract, rather than a fixed fine as assumed by Ozanne et al. White argues that his results show that an input charge/transfer payment policy is more efficient than a quota when the regulator cannot observe compliance costs of individual farmers. This paper integrates the previous work, developing a model of both hidden action and hidden information in agri-environmental schemes based on the input quota/transfer payment approach of Moxey et al. (1999) and Ozanne et al. (2001), rather than the input charge/transfer payment approach of White (2002), but the variable fine of the latter rather than the fixed fine assumed by Ozanne et al. This integrated model shows that, contrary to White (2002), the input quota and input charges approaches lead to identical outcomes in terms of abatement levels, compensation payments, monitoring costs, probabilities and social welfare.

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Bibliographic Info

Paper provided by Australian Agricultural and Resource Economics Society in its series 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia with number 58196.

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Date of creation: Feb 2003
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Handle: RePEc:ags:aare03:58196

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Keywords: Environmental Economics and Policy;

References

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  1. Fraser, Rob W., 2002. "Moral Hazard and Risk Management in Agri-Environmental Policy," 2002 Conference (46th), February 13-15, 2002, Canberra 125086, Australian Agricultural and Resource Economics Society.
  2. Andrew Moxey & Ben White & Adam Ozanne, 1999. "Efficient Contract Design for Agri-Environment Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(2), pages 187-202.
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Cited by:
  1. Stefani, Gianluca & Giudicissi, Eufrasia, 2011. "Cross Compliance: what about compliance?," 122nd Seminar, February 17-18, 2011, Ancona, Italy 99597, European Association of Agricultural Economists.
  2. Ozanne, Adam & White, Benedict, 2008. "Hidden action, risk aversion and variable fines in agri-environmental schemes," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(2), June.
  3. Bazzani, Guido Maria & Viaggi, Davide, 2004. "Improving the design of agri-environmental policies: a case study in Italy," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 5(2), August.
  4. Bardsley, Peter & Burfurd, Ingrid, 2009. "Contract Design for Biodiversity Procurement," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48047, Australian Agricultural and Resource Economics Society.

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