Efficient Procurement of Ecosystem Services – Adverse versus Beneficial Selection
AbstractThe role of adverse selection in schemes for the procurement of ecosystem services has been investigated by many who suggest that efficiency of these schemes is impaired by problems arising from adverse selection. However recent research on the UK Environmental Stewardship Scheme suggests that these types of procurement system may not be characterised by adverse selection but by what might be more appropriately labelled as “beneficial selection”. These results are based on the analysis of a simple theoretical model and the empirical implications are confirmed using econometric analysis. However it is also suggested that, even with beneficial selection, there will still remain systemic inefficiency arising from a continuing need for the payment of informational rents to the farmers participating in the scheme. This paper presents the analysis of a model that focuses on the Principal- Agent characteristics of this problem and sets out to investigate the tradeoffs that arise in designing ecosystem procurement mechanisms where payment of informational rents to participants can be used to increase overall efficiency. The impact of beneficial selection is carefully explored here, and we suggest implications for policy makers and empirical propositions to be tested using a suitable data set.
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Bibliographic InfoPaper provided by Agricultural Economics Society in its series 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK with number 134988.
Date of creation: Apr 2012
Date of revision:
Asymmetric Information; Beneficial Selection; Adverse Selection; Payment for Ecosystem Services; Environmental Economics and Policy; D82; Q57;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-CTA-2012-10-13 (Contract Theory & Applications)
- NEP-ENV-2012-10-13 (Environmental Economics)
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