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Ratcheting in Renewable Resources Contracting

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Author Info

  • Urs Steiner Brandt

    ()
    (Department of Environmental and Business Economics, University of Southern Denmark)

  • Frank Jensen

    ()
    (Institute of Local Government Studies, Denmark)

  • Lars Gårn Hansen

    ()
    (Institute of Local Government Studies, Denmark)

  • Niels Vestergaard

    ()
    (Department of Environmental and Business Economics, University of Southern Denmark)

Abstract

Real life implies that public procurement contracting of renewable resources results in repeated interaction between a principal and the agents. The present paper analyses ratchet effects in contracting of renewable resources and how the presence of a resource constraint alters the “standard” ratchet effect result. We use a linear reward scheme to influence the incentives of the agents. It is shown that for some renewable resources we might end up both with more or with less pooling in the first-period compared to a situation without a resource constraint. The reason is that the resource constraint implies a smaller performance de-pendent bonus, which reduces the first-period cost from concealing information but at the same time the resource constraint may also imply that second-period benefits from this concealment for the efficient agent are reduced. In situations with high likelihood of first-period pooling, the appropriateness of applying lin-ear incentive schemes can be questioned.

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File URL: http://www.sdu.dk/~/media/Files/Om_SDU/Institutter/Miljo/ime/wp/brandt58.ashx
File Function: First version, 2004-09
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Bibliographic Info

Paper provided by University of Southern Denmark, Department of Environmental and Business Economics in its series Working Papers with number 58/04.

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Length: 44 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:sdk:wpaper:58

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Keywords: Political support function; political economy; environmental regula-tion; lobbyism; rent-seeking; taxation; auction; grandfathering; emission trad-ing; European Union; interest groups; industry; consumers; environmentalists;

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  1. Clark, Colin W. & Munro, Gordon R., 1975. "The economics of fishing and modern capital theory: A simplified approach," Journal of Environmental Economics and Management, Elsevier, vol. 2(2), pages 92-106, December.
  2. Frank Jensen & Niels Vestergaard, 2002. "A Principal-Agent Analysis of Fisheries," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(2), pages 276-, June.
  3. Dillen, Mats & Lundholm, Michael, 1996. "Dynamic income taxation, redistribution, and the ratchet effect," Journal of Public Economics, Elsevier, vol. 59(1), pages 69-93, January.
  4. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  5. Ortmann, Andreas & Squire, Richard, 2000. "A game-theoretic explanation of the administrative lattice in institutions of higher learning," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 377-391, November.
  6. Jensen, Frank & Vestergaard, Niels, 2002. "Moral hazard problems in fisheries regulation: the case of illegal landings and discard," Resource and Energy Economics, Elsevier, vol. 24(4), pages 281-299, November.
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