IDEAS home Printed from https://ideas.repec.org/p/ags/aesc09/51068.html
   My bibliography  Save this paper

Adverse Selection in the Environmental Stewardship Scheme: Does the Higher Level Entry Scheme Design Reduce Adverse Selection?

Author

Listed:
  • Quillerou, Emmanuelle
  • Fraser, Rob W.

Abstract

The Environmental Stewardship Scheme provides payments to farmers for the provision of environmental services based on agricultural foregone income. This creates a potential incentive compatibility problem which, combined with an information asymmetry on farm land heterogeneity, could lead to adverse selection of farmers into the scheme. However, the Higher Level Scheme (HLS) design includes some features that potentially reduce adverse selection. This paper studies the adverse selection problem of the HLS using a principal agent framework at the regional level. It is found that, at the regional level, the enrolment of more land from lower payment regions for a given budget constraint has led to a greater overall contracted area (and thus potential environmental benefit) which has had the effect of reducing the adverse selection problem. In addition, for landscape regions with the same payment rate (i.e. of the same agricultural value), differential weighting of the public demand for environmental goods and services provided by agriculture (measured by weighting an environmental benefit function by the distance to main cities) appears to be reflected into the regulator’s allocation of contracts, thereby also reducing the adverse selection problem.

Suggested Citation

  • Quillerou, Emmanuelle & Fraser, Rob W., 2009. "Adverse Selection in the Environmental Stewardship Scheme: Does the Higher Level Entry Scheme Design Reduce Adverse Selection?," 83rd Annual Conference, March 30 - April 1, 2009, Dublin, Ireland 51068, Agricultural Economics Society.
  • Handle: RePEc:ags:aesc09:51068
    DOI: 10.22004/ag.econ.51068
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/51068/files/Quillerou_fraser4.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.51068?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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, May.
    2. Feng, Hongli, 2007. "Green payments and dual policy goals," Journal of Environmental Economics and Management, Elsevier, vol. 54(3), pages 323-335, November.
    3. Bateman, Ian J. & Day, Brett H. & Georgiou, Stavros & Lake, Iain, 2006. "The aggregation of environmental benefit values: Welfare measures, distance decay and total WTP," Ecological Economics, Elsevier, vol. 60(2), pages 450-460, December.
    4. Rob Fraser, 2009. "Land Heterogeneity, Agricultural Income Forgone and Environmental Benefit: An Assessment of Incentive Compatibility Problems in Environmental Stewardship Schemes," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(1), pages 190-201, February.
    5. JunJie Wu & Bruce A. Babcock, 1996. "Contract Design for the Purchase of Environmental Goods from Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 935-945.
    6. Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, vol. 49(1), pages 33-64, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sauer, Johannes & Walsh, John, 2011. "ESS versus NVZ – The Cost-Effectiveness of Command-and-Control versus Agreement Based Policy Instruments," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108963, Agricultural Economics Society.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emmanuelle Quillérou & Rob Fraser, 2010. "Adverse Selection in the Environmental Stewardship Scheme: Does the Higher Level Stewardship Scheme Design Reduce Adverse Selection?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 369-380, June.
    2. Salas, Paula Cordero & Roe, Brian E. & Sohngen, Brent, 2012. "Addressing Additionality in REDD Contracts when Formal Enforcement is Absent," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124505, Agricultural and Applied Economics Association.
    3. Charles Palmer & Markus Ohndorf & Ian A. MacKenzie, 2009. "Life’s a breach! Ensuring ‘permanence’ in forest carbon sinks under incomplete contract enforcement," CER-ETH Economics working paper series 09/113, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Sauer, Johannes & Walsh, John, 2011. "ESS versus NVZ – The Cost-Effectiveness of Command-and-Control versus Agreement Based Policy Instruments," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108963, Agricultural Economics Society.
    5. Carmen Arguedas & Daan Soest, 2011. "Optimal Conservation Programs, Asymmetric Information and the Role of Fixed Costs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(2), pages 305-323, October.
    6. Yano, Yuki & Blandford, David, 2008. "Use of Penalties and Rewards in Agri-Environmental Policy," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36873, Agricultural Economics Society.
    7. Goeschl, Timo & Lin, Tun, 2004. "Endogenous Information Structures in Conservation Contracting," Staff Papers 12666, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    8. Vergamini, Daniele & White, Benedict & Viaggi, Davide, 2015. "Agri-Environmental Policies design in Europe, USA and Australia: is an auction more cost-effective than a self-selecting contract schedule?," 2015 Fourth Congress, June 11-12, 2015, Ancona, Italy 207357, Italian Association of Agricultural and Applied Economics (AIEAA).
    9. Lewis, David J. & Plantinga, Andrew J. & Nelson, Erik & Polasky, Stephen, 2011. "The efficiency of voluntary incentive policies for preventing biodiversity loss," Resource and Energy Economics, Elsevier, vol. 33(1), pages 192-211, January.
    10. Peter Bardsley & Ingrid Burfurd, 2008. "Contract Design for Biodiversity Procurement," Department of Economics - Working Papers Series 1031, The University of Melbourne.
    11. Kuhfuss, Laure & Jacquet, Florence, 2012. "Le dispositif des MAEt pour l’enjeu eau : une fausse bonne idée ?," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 93(4).
    12. 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), pages 1-10.
    13. Cho, Wonjoo & Blandford, David, 2015. "Bilateral information asymmetry and irreversible practice adoption through agri-environmental policy: an application to peat land retirement in Norway," 89th Annual Conference, April 13-15, 2015, Warwick University, Coventry, UK 204212, Agricultural Economics Society.
    14. Rob Fraser, 2009. "Land Heterogeneity, Agricultural Income Forgone and Environmental Benefit: An Assessment of Incentive Compatibility Problems in Environmental Stewardship Schemes," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(1), pages 190-201, February.
    15. Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
    16. Paula Cordero Salas & Brian E. Roe & Brent Sohngen, 2018. "Additionality When REDD Contracts Must be Self-Enforcing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(1), pages 195-215, January.
    17. Lankoski, Jussi E. & Lichtenberg, Erik & Ollikainen, Markku, 2008. "Agri-environmental program compliance under heterogeneous conditions," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44381, European Association of Agricultural Economists.
    18. Sophie Thoyer & Sandra Saïd, 2007. "Mesures agri-environnementales : quels mécanismes d’allocation?," Studies and Syntheses 07-01, LAMETA, Universtiy of Montpellier, revised Jan 2007.
    19. Yano, Yuki & Blandford, David, 2008. "Agri-Environmental Policy and Moral Hazard under Output Price and Production Uncertainty," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44323, European Association of Agricultural Economists.
    20. White, Benedict & Raguragavan, Jananee & Chambers, Robert G., 2007. "Agri-environmental Regulation on the Back of a Data Envelopment Analysis," 81st Annual Conference, April 2-4, 2007, Reading University, UK 7963, Agricultural Economics Society.

    More about this item

    Keywords

    Environmental Economics and Policy;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aesc09:51068. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aesukea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.