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Moral Hazard, Targeting and Contract Duration in Agri-Environmental Policy

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  • Fraser, Rob W.

Abstract

This paper extends the multi-period agri-environmental contract model of Fraser (2004) so that it contains a more realistic specification of the inter-temporal penalties for noncompliance, and therefore of the inter-temporal moral hazard problem in agri-environmental policy design. On this basis it is shown that a farmer will have an unambiguous preference for cheating early over cheating late in the contract period based on differences in the expected cost of compliance. It is then shown how the principal can make use of this unambiguous preference to target monitoring resources intertemporally, and in so doing, to encourage full contract duration compliance.

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File URL: http://purl.umn.edu/100550
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Bibliographic Info

Paper provided by Australian Agricultural and Resource Economics Society in its series 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia with number 100550.

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Date of creation: 2011
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Handle: RePEc:ags:aare11:100550

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Keywords: Environmental Economics and Policy;

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  1. Alger, Ingela & Albert Ma, Ching-to, 2003. "Moral hazard, insurance, and some collusion," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 225-247, February.
  2. Fraser, Rob W., 2003. "On the use of targeting to reduce moral hazard in agri-environmental schemes," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57867, Australian Agricultural and Resource Economics Society.
  3. Chongwoo Choe & Iain Fraser, 1999. "Compliance Monitoring and Agri-Environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 468-487.
  4. Rob Fraser, 2002. "Moral Hazard and Risk Management in Agri-environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 475-487.
  5. Adam Ozanne & Ben White, 2007. "Equivalence of Input Quotas and Input Charges under Asymmetric Information in Agri-environmental Schemes," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(2), pages 260-268, 06.
  6. Heyes, Anthony, 2000. "Implementing Environmental Regulation: Enforcement and Compliance," Journal of Regulatory Economics, Springer, vol. 17(2), pages 107-29, March.
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Cited by:
  1. Unay Gailhard, Ilkay & Bavorova, Miroslava & Pirscher, Frauke, 2012. "The Influence of Communication Frequency with Social Network Actors on the Continuous Innovation Adoption: Organic Farmers in Germany," 131st Seminar, September 18-19, 2012, Prague, Czech Republic 135786, European Association of Agricultural Economists.

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