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Incentive Contracts for Natura 2000 Implementation: A Mixed Model of Adverse Selection and Moral Hazard

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Author Info

  • Signe Anthon
  • Serge Garcia

    ()
    (Laboratoire d'Economie Forestière, INRA - AgroParisTech)

  • Anne Stenger

    ()
    (Laboratoire d'Economie Forestière, INRA - AgroParisTech)

Abstract

The implementation of nature conservation policy in the EU is often based on contracts between public authorities and landowners. We model these contracts in the presence of adverse selection and moral hazard when the outcome is uncertain. The results show that agents, who have high probability to reach a higher level of conservation, should be offered a contract where transfers depend on the final outcome with a bonus for a high state. When conservation measures are correlated with forest management, we show that the contractual measures involve distorded tranfers. Finally, we analyze the payment mechanisms used in France and Denmark and show that these mechanisms result in overcompensation and underperformance since they do not take the problem of moral hazard and natural variability into account.

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Bibliographic Info

Paper provided by Laboratoire d'Economie Forestiere, AgroParisTech-INRA in its series Working Papers - Cahiers du LEF with number 2006-06.

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Length: 37 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:lef:wpaper:2006-06

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Related research

Keywords: Natura 2000; Forest; Contracts; Mixed model; Adverse selection; Moral hazard.;

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References

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  1. Laffont, Jean-Jacques, 1995. "Regulation, moral hazard and insurance of environmental risks," Journal of Public Economics, Elsevier, vol. 58(3), pages 319-336, November.
  2. Slangen, Louis H G, 1997. "How to Organise Nature Production by Farmers," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 24(3-4), pages 508-29.
  3. Theilen, Bernd, 2003. "Simultaneous moral hazard and adverse selection with risk averse agents," Economics Letters, Elsevier, vol. 79(2), pages 283-289, May.
  4. Moyle, Brendan, 1998. "Species conservation and the principal-agent problem," Ecological Economics, Elsevier, vol. 26(3), pages 313-320, September.
  5. Kline, Jeffrey D. & Alig, Ralph J. & Johnson, Rebecca L., 2000. "Forest owner incentives to protect riparian habitat," Ecological Economics, Elsevier, vol. 33(1), pages 29-43, April.
  6. Boyer, Marcel & Laffont, Jean-Jacques, 1994. "Environmental Risks and Bank Liability," IDEI Working Papers 45, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Hiriart, Yolande & Martimort, David, 2004. "Environmental Risk Regulation and Liability under Adverse Selection and Moral Hazard," IDEI Working Papers 256, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Huennemeyer, Anne-Juliane & Rollins, Kimberly S., 2001. "Private Resource Management And Public Trust: Optimal Resource Conservation Contracts Under Asymmetric Information," Working Papers 34141, University of Guelph, Department of Food, Agricultural and Resource Economics.
  9. Guesnerie Roger & Picard Pierre & Rey P, 1986. "Adverse selection and moral hazard with risk-neutral agent," CEPREMAP Working Papers (Couverture Orange) 8624, CEPREMAP.
  10. Philippe Bontems & Alban Thomas, 2006. "Regulating Nitrogen Pollution with Risk Averse Farmers under Hidden Information and Moral Hazard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 57-72.
  11. Russell, Noel P, 1993. "Efficiency of Rural Conservation and Supply Control Policies," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 20(3), pages 315-26.
  12. Smith, Rodney B. W. & Shogren, Jason F., 2002. "Voluntary Incentive Design for Endangered Species Protection," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 169-187, March.
  13. Ing-Marie Gren, 2004. "Uniform or discriminating payments for environmental production on arable land under asymmetric information," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(1), pages 61-76, March.
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Cited by:
  1. Francesco Testa & Natalia M. Gusmerotti & D. Amirante & Marco Frey, 2012. "The role of negotiating tools in the environmental policy mix instruments: determinants and effects of Environmental Agreement," Working Papers 201202, Scuola Superiore Sant'Anna of Pisa, Istituto di Management.

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