Coordinating to Eradicate Animal Disease, and the Role of Insurance Markets
AbstractFarmed animal production has traditionally been a dispersed sector. Biosecurity actions relevant to eradicating infectious diseases are generally non-contractible, and might involve inordinately high transactions costs if they were contractible. If an endemic disease is to be eradicated within a region, synchronized actions need to be taken to reduce incidence below a critical mass so that spread can be contained. Using a global game model of coordination under public and private information concerning the critical mass required, this paper characterizes the success probability in an eradication campaign. As is standard in global games, heterogeneity in private signals can support a unique equilibrium. Partly because of strategic interactions, concentrated production is found to facilitate eradication whenever unit participation costs are decreasing. Policies to manipulate the critical mass have both a direct effect and a strategic coordination effect. Policies to manipulate information can have subtle and non-intuitive consequences. A program to keep disease out can be modeled similarly. It is shown, too, that coordination problems may lead to multiple equilibria in animal disease insurance markets, so that these markets may complicate a disease eradication program by creating opportunities for multiple inefficient equilibria. The presence of private insurance markets may facilitate coordination and, for good or ill, can seal the fate of a program.
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Bibliographic InfoPaper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 07-wp457.
Date of creation: Nov 2007
Date of revision:
biosecurity; coordination failure; disease insurance; endemic disease; global games; market access; public information; veterinary public health.;
Find related papers by JEL classification:
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- H4 - Public Economics - - Publicly Provided Goods
- Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
This paper has been announced in the following NEP Reports:
- NEP-AGR-2008-01-05 (Agricultural Economics)
- NEP-ALL-2008-01-05 (All new papers)
- NEP-IAS-2008-01-05 (Insurance Economics)
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