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Private Resource Management And Public Trust: Optimal Resource Conservation Contracts Under Asymmetric Information

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Author Info
Huennemeyer, Anne-J.
Rollins, Kimberly S.

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Abstract

We analyse efficiency problems of incentive-compatible contracts under moral hazard and/or adverse selection in the context of private resource management. The paper contributes to defining the regulatory role in creating an optimal information environment between regulator and private resource managers to maximize welfare from a mixed public-private good. The optimal contract structures developed in a principal-agent framework induce self-selection and type-specific conservation efforts. The associated contracting inefficiencies, however, are increasing in the degree of information asymmetry across scenarios, the total costs of conservation, and the difference in conservation costs across types. The results of this study imply that conservation contracts to mitigate problems of moral hazard and adverse selection are welfare improving if efficiency gains from private management outweigh the inefficiencies associated with incentive compatible contract design. Alternatively, the regulator can choose to retain information on 'types' and 'effort' during institutional transformations.

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Publisher Info
Paper provided by University of Guelph, Department of Food, Agricultural and Resource Economics in its series Working Papers with number 34141.

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Date of creation: 2001
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Handle: RePEc:ags:uguewp:34141

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Related research
Keywords: Resource /Energy Economics and Policy;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. JunJie Wu & Bruce A. Babcock, 1995. "Optimal Design of a Voluntary Green Payment Program Under Asymmetric Information," Center for Agricultural and Rural Development (CARD) Publications 95-wp131, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
  2. Kwerel, Evan, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 595-601, October. [Downloadable!] (restricted)
  3. Cohen, Mark A, 1987. "Optimal Enforcement Strategy to Prevent Oil Spills: An Application of a Principal-Agent Model with Moral Hazard," Journal of Law & Economics, University of Chicago Press, vol. 30(1), pages 23-51, April.
  4. Tracy R. Lewis, 1996. "Protecting the Environment When Costs and Benefits Are Privately Known," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 819-847, Winter. [Downloadable!] (restricted)
  5. Dasgupta, Partha & Hammond, Peter & Maskin, Eric, 1980. "On Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Blackwell Publishing, vol. 47(5), pages 857-60, October. [Downloadable!] (restricted)
  6. Bystrom, Olof & Bromley, Daniel W., 1998. "Contracting For Nonpoint-Source Pollution Abatement," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(01), July. [Downloadable!]
  7. Chambers, Robert G. & Quiggin, John, 1996. "Non-point-source pollution regulation as a multi-task principal-agent problem," Journal of Public Economics, Elsevier, vol. 59(1), pages 95-116, January. [Downloadable!] (restricted)
  8. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April. [Downloadable!] (restricted)
  9. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March. [Downloadable!] (restricted)
  10. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April. [Downloadable!] (restricted)
  11. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 541-62, November. [Downloadable!] (restricted)
  12. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March. [Downloadable!] (restricted)
  13. Wu, JunJie & Babcock, Bruce A., 1996. "Contract Design for the Purchase of Environmental Goods from Agriculture," Staff General Research Papers 1050, Iowa State University, Department of Economics.
  14. Picard, Pierre, 1987. "On the design of incentive schemes under moral hazard and adverse selection," Journal of Public Economics, Elsevier, vol. 33(3), pages 305-331, August. [Downloadable!] (restricted)
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  15. Livernois, John & McKenna, C. J., 1999. "Truth or consequences: Enforcing pollution standards with self-reporting," Journal of Public Economics, Elsevier, vol. 71(3), pages 415-440, March. [Downloadable!] (restricted)
  16. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
  17. Hoy, Michael, 1989. "The value of screening mechanisms under alternative insurance possibilities," Journal of Public Economics, Elsevier, vol. 39(2), pages 177-206, July. [Downloadable!] (restricted)
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  1. Signe Anthon & Serge Garcia & Anne Stenger, 2006. "Incentive Contracts for Natura 2000 Implementation: A Mixed Model of Adverse Selection and Moral Hazard," Working Papers - Cahiers du LEF 2006-06, Laboratoire d'Economie Forestiere, AgroParisTech-INRA. [Downloadable!]
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