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

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  • Huennemeyer, Anne-Juliane
  • Rollins, Kimberly S.

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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File URL: http://purl.umn.edu/34141
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Bibliographic 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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Web page: http://fare.uoguelph.ca/
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Keywords: Resource /Energy Economics and Policy;

References

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  3. 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, Agricultural and Applied Economics Association, vol. 78(4), pages 935-945.
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  5. Wu, JunJie & Babcock, Bruce A., 1995. "Optimal Design Of A Voluntary Green Payment Program Under Asymmetric Information," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 20(02), December.
  6. Rollins, Kimberly & Briggs, Hugh III, 1996. "Moral Hazard, Externalities, and Compensation for Crop Damages from Wildlife," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 368-386, November.
  7. Kwerel, Evan, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 595-601, October.
  8. Anderson, Terry L & Hill, Peter J, 1996. "Appropriable Rents from Yellowstone Park: A Case of Incomplete Contracting," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 34(3), pages 506-18, July.
  9. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, Oxford University Press, edition 2, number 9780199243259, October.
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  12. Xepapadeas, A. P., 1991. "Environmental policy under imperfect information: Incentives and moral hazard," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 113-126, March.
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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.
  16. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
  17. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
  18. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
  19. Peterson, Jeffrey M. & Boisvert, Richard N., 1998. "Optimal Voluntary "Green" Payment Programs To Limit Nitrate Contamination Under Price and Yield Risk," Research Bulletins, Cornell University, Department of Applied Economics and Management 122687, Cornell University, Department of Applied Economics and Management.
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  22. Cohen, Mark A, 1987. "Optimal Enforcement Strategy to Prevent Oil Spills: An Application of a Principal-Agent Model with Moral Hazard," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 23-51, April.
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Cited by:
  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.

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