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Prevention and Compensation of Muddy Flows: Some Economic Insights

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  • Sandrine Spaeter
  • François Cochard
  • Anne Rozan
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    Abstract

    Recent surveys report the increasing number of muddy flows in many areas, and point out the fact that agricultural practices (among others) influence significantly the risk and severity of muddy flows. In this paper, we investigate the economic incentives that can be given to the farmer to adopt different practices. We propose an original economic instrument that entails an `ambient tax', voluntary revelations and a compensation fund. Because of the authorities' difficulties to be informed of each farmer's individual efforts, the tax cannot depend on the individual but on the collective level of efforts. However, each agent may lower his tax payment by revealing his individual efforts to the regulator so that high efforts may be rewarded compared to low ones. The tax revenue is used to supply a fund that is dedicated to the compensation of victims if a muddy flow occurs. hence it is possible to simultaneously increase the incentives for farmers to adopt more environmentally friendly practices and to improve the compensation of victims without mitigating their incentives to protect themselves against the risk of muddy flow.

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    Bibliographic Info

    Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2006-29.

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    Date of creation: 2006
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    Handle: RePEc:ulp:sbbeta:2006-29

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    Keywords: muddy flow; natural disasters; economic incentives; ambient tax; insurance; compensation fund.;

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    1. Camacho Cuena, Eva & Requate, Till, 2004. "Collective and Random Fining versus Tax/Subsidy - Schemes to Regulate Non-Point Pollution : An Experimental Study," Economics Working Papers, Christian-Albrechts-University of Kiel, Department of Economics 2004,10, Christian-Albrechts-University of Kiel, Department of Economics.
    2. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 76, pages 169.
    3. Francisco Alpízar & Till Requate & Albert Schram, 2004. "Collective versus Random Fining: An Experimental Study on Controlling Ambient Pollution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 29(2), pages 231-252, October.
    4. Kritikos, Alexander S., 2004. "A penalty system to enforce policy measures under incomplete information," International Review of Law and Economics, Elsevier, Elsevier, vol. 24(3), pages 385-403, September.
    5. Lars Hansen, 1998. "A Damage Based Tax Mechanism for Regulation of Non-Point Emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 12(1), pages 99-112, July.
    6. 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.
    7. François Cochard & Marc Willinger & Anastasios Xepapadeas, 2005. "Efficiency of nonpoint source pollution instruments: an experimental study," Working Papers, Institut National de la Recherche Agronomique, France 23298, Institut National de la Recherche Agronomique, France.
    8. Gregory L. Poe & William D. Schulze & Kathleen Segerson & Jordan F. Suter & Christian A. Vossler, 2004. "Exploring the Performance of Ambient-Based Policy Instruments When Nonpoint Source Polluters Can Cooperate," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 86(5), pages 1203-1210.
    9. Horan, Richard D. & Shortle, James S. & Abler, David G., 1998. "Ambient Taxes When Polluters Have Multiple Choices," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 186-199, September.
    10. Happe, Kathrin & Damgaard, Martin & Osuch, Amanda & Sattler, Claudia & Zander, Peter & Uthes, Sandra & Schuler, Johannes & Piorr, Annette, 2006. "CAP-reform and the provision of non-commodity outputs in Brandenburg," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 55(5/6).
    11. Jason F. Shogren, 2004. "Incentive Mechanism Testbeds: Discussion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 86(5), pages 1218-1219.
    12. John Spraggon, 1998. "Exogenous Targeting Instruments as a Solution to Group Moral Hazards," Department of Economics Working Papers 1998-01, McMaster University.
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