IDEAS home Printed from https://ideas.repec.org/a/bla/ajarec/v52y2008i2p203-212.html
   My bibliography  Save this article

Hidden action, risk aversion and variable fines in agri-environmental schemes

Author

Listed:
  • Adam Ozanne
  • Ben White

Abstract

This note analyses the design of agri-environmental schemes for risk-averse producers whose input usage is only observable by costly monitoring. The scheme penalises producers in proportion to input use in excess of a quota. A striking result is that if the scheme is designed in such a way that producers always comply with the quota, risk aversion is not relevant in determining the level of input use. Copyright 2008 The Authors. Journal compilation 2008 Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Asia Pty Ltd.

Suggested Citation

  • Adam Ozanne & Ben White, 2008. "Hidden action, risk aversion and variable fines in agri-environmental schemes ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(2), pages 203-212, June.
    • Handle: RePEc:bla:ajarec:v:52:y:2008:i:2:p:203-212
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1467-8489.2008.00408.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bardsley, Peter & Harris, Michael, 1987. "An Approach To The Econometric Estimation Of Attitudes To Risk In Agriculture," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 31(2), pages 1-15, August.
    2. Bourgeon, Jean-Marc & Jayet, Pierre-Alain & Picard, Pierre, 1995. "An incentive approach to land set-aside programs," European Economic Review, Elsevier, vol. 39(8), pages 1487-1509, October.
    3. Andrew Moxey & Ben White & Adam Ozanne, 1999. "Efficient Contract Design for Agri‐Environment Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(2), pages 187-202, May.
    4. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    5. Patterson, Jeffrey M. & Boisvert, Richard N., 2002. "An Incentive Compatible Self-Compliant Pollution Policy and Asymmetric Information on Both Risk Attitudes and Technology," Working Papers 127318, Cornell University, Department of Applied Economics and Management.
    6. Howard D. Leathers & John C. Quiggin, 1991. "Interactions between Agricultural and Resource Policy: The Importance of Attitudes toward Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 757-764.
    7. C. Choe & I. Fraser, 1998. "A Note on Imperfect Monitoring of Agri‐Environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(2), pages 250-258, June.
    8. Chongwoo Choe & Iain Fraser, 1999. "Compliance Monitoring and Agri‐Environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 468-487, September.
    9. Uwe Latacz-Lohmann & Carel Van der Hamsvoort, 1997. "Auctioning Conservation Contracts: A Theoretical Analysis and an Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
    10. Rob Fraser, 2002. "Moral Hazard and Risk Management in Agri‐environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 475-487, November.
    11. Ozanne, Adam & White, Benedict, 2003. "Agri-environment Policy Design With Hidden Information and Hidden Action: Input Quotas vs Input Charges," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 58196, Australian Agricultural and Resource Economics Society.
    12. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
    13. 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, vol. 78(4), pages 935-945.
    14. Murat Isik, 2002. "Resource Management under Production and Output Price Uncertainty: Implications for Environmental Policy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 557-571.
    15. Adam Ozanne & Tim Hogan, 2001. "Moral hazard, risk aversion and compliance monitoring in agri-environmental policy," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 28(3), pages 329-348, October.
    16. Adam Ozanne & Ben White, 2007. "Equivalence of Input Quotas and Input Charges under Asymmetric Information in Agri‐environmental Schemes," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(2), pages 260-268, June.
    17. Robert G. Chambers, 1992. "On the Design of Agricultural Policy Mechanisms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(3), pages 646-654.
    18. Bond, Gary E. & Wonder, Bernard, 1980. "Risk Attitudes Amongst Australian Farmers," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 24(1), pages 1-19, April.
    19. Gary E. Bond & Bernard Wonder, 1980. "Risk Attitudes Amongst Australian Farmers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 24(1), pages 16-34, April.
    20. Jeffrey M. Peterson & Richard N. Boisvert, 2004. "Incentive-Compatible Pollution Control Policies under Asymmetric Information on Both Risk Preferences and Technology," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 291-306.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Elofsson, Katarina, 2011. "Contracting Nitrogen Abatement in the Baltic Proper Watershed Under the Risk of Climate Change," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114344, European Association of Agricultural Economists.
    2. Vedel, Suzanne Elizabeth & Jacobsen, Jette Bredahl & Thorsen, Bo Jellesmark, 2015. "Contracts for afforestation and the role of monitoring for landowners’ willingness to accept," Forest Policy and Economics, Elsevier, vol. 51(C), pages 29-37.
    3. Stine Broch & Suzanne Vedel, 2012. "Using Choice Experiments to Investigate the Policy Relevance of Heterogeneity in Farmer Agri-Environmental Contract Preferences," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(4), pages 561-581, April.
    4. Ben White & Rohan Sadler, 2012. "Optimal conservation investment for a biodiversity‐rich agricultural landscape," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(1), pages 1-21, January.
    5. Maria Alló & Maria L. Loureiro & Eva Iglesias, 2015. "Farmers' Preferences and Social Capital Regarding Agri‐environmental Schemes to Protect Birds," Journal of Agricultural Economics, Wiley Blackwell, vol. 66(3), pages 672-689, September.
    6. Sauer, J. & Walsh, J. & Zilberman, D., 2014. "Agri-Environmental Policy Effects at Producer Level – Identification and Measurement," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 49, March.
    7. Lapierre, Margaux & Le Velly, Gwenolé & Bougherara, Douadia & Préget, Raphaële & Sauquet, Alexandre, 2023. "Designing agri-environmental schemes to cope with uncertainty," Ecological Economics, Elsevier, vol. 203(C).
    8. Sophie Thoyer & Sandra Saïd, 2007. "Mesures agri-environnementales : quels mécanismes d’allocation?," Studies and Syntheses 07-01, LAMETA, Universtiy of Montpellier, revised Jan 2007.
    9. Alló, Maria & Igleasias, Eva & Loureiro, Maria L., 2013. "Farmers’ preferences and social capital towards agri-environmental schemes for protecting birds," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150620, Agricultural and Applied Economics Association.
    10. Sauer, Johannes & Walsh, John, 2011. "ESS versus NVZ – The Cost-Effectiveness of Command-and-Control versus Agreement Based Policy Instruments," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108963, Agricultural Economics Society.
    11. Sauer, Johannes & Walsh, John & Zilberman, David, 2012. "Behavioural Change through Agri-Environmental Policies ? – A Distance Function based Matching Approach," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134783, Agricultural Economics Society.
    12. Matteo Olivieri & Maria Andreoli & Daniele Vergamini & Fabio Bartolini, 2021. "Innovative Contract Solutions for the Provision of Agri-Environmental Climatic Public Goods: A Literature Review," Sustainability, MDPI, vol. 13(12), pages 1-22, June.
    13. Wieck, Christine & Annen, Dominic N., 2012. "Participation, compliance and synergies at the farm level between the single payments scheme and farm certification labels," Discussion Papers 122123, University of Bonn, Institute for Food and Resource Economics.
    14. Cho, Wonjoo & Blandford, David, 2015. "Bilateral information asymmetry and irreversible practice adoption through agri-environmental policy: an application to peat land retirement in Norway," 89th Annual Conference, April 13-15, 2015, Warwick University, Coventry, UK 204212, Agricultural Economics Society.
    15. Sauer, Johannes & Walsh, John & Zilberman, David, 2012. "Producer Behaviour and Agri-Environmental Policies: A Directional Distance based Matching Approach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124877, Agricultural and Applied Economics Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yuki Yano & David Blandford, 2009. "Use of Compliance Rewards in Agri‐environmental Schemes," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(3), pages 530-545, September.
    2. Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
    3. Yano, Yuki & Blandford, David, 2008. "Use of Penalties and Rewards in Agri-Environmental Policy," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36873, Agricultural Economics Society.
    4. Yano, Yuki & Blandford, David, 2008. "Agri-Environmental Policy and Moral Hazard under Output Price and Production Uncertainty," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44323, European Association of Agricultural Economists.
    5. Vergamini, Daniele & White, Benedict & Viaggi, Davide, 2015. "Agri-Environmental Policies design in Europe, USA and Australia: is an auction more cost-effective than a self-selecting contract schedule?," 2015 Fourth Congress, June 11-12, 2015, Ancona, Italy 207357, Italian Association of Agricultural and Applied Economics (AIEAA).
    6. Sauer, Johannes & Walsh, John, 2011. "ESS versus NVZ – The Cost-Effectiveness of Command-and-Control versus Agreement Based Policy Instruments," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108963, Agricultural Economics Society.
    7. Peter Bardsley & Ingrid Burfurd, 2008. "Contract Design for Biodiversity Procurement," Department of Economics - Working Papers Series 1031, The University of Melbourne.
    8. Salas, Paula Cordero & Roe, Brian E. & Sohngen, Brent, 2012. "Addressing Additionality in REDD Contracts when Formal Enforcement is Absent," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124505, Agricultural and Applied Economics Association.
    9. Paula Cordero Salas & Brian E. Roe & Brent Sohngen, 2018. "Additionality When REDD Contracts Must be Self-Enforcing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(1), pages 195-215, January.
    10. Lankoski, Jussi E. & Lichtenberg, Erik & Ollikainen, Markku, 2008. "Agri-environmental program compliance under heterogeneous conditions," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44381, European Association of Agricultural Economists.
    11. Bazzani, Guido Maria & Viaggi, Davide, 2004. "Improving the design of agri-environmental policies: a case study in Italy," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 5(2), pages 1-15, August.
    12. Schilizzi, Steven & Breustedt, Gunnar & Latacz-Lohmann, Uwe, 2011. "Does tendering conservation contracts with performance payments generate additional benefits?," Working Papers 100883, University of Western Australia, School of Agricultural and Resource Economics.
    13. Bartolini, Fabio & Gallerani, Vittorio & Raggi, Meri & Viaggi, Davide, 2005. "Contract Design and Targeting for the Production of Public Goods in Agriculture: The Impact of the 2003 Cap Reform," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24559, European Association of Agricultural Economists.
    14. Latacz-Lohmann, U. & Schilizzi, S. & Breustedt, G., 2012. "Auctioning outcome-based conservation contracts," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 47, March.
    15. Latacz-Lohmann, Uwe & Schilizzi, Steven & Breustedt, Gunnar, 2011. "Auctioning Outcome-Based Conservation Contracts," 51st Annual Conference, Halle, Germany, September 28-30, 2011 114523, German Association of Agricultural Economists (GEWISOLA).
    16. Kentaro Kawasaki & Takeshi Fujie & Kentaro Koito & Norikazu Inoue & Hiroki Sasaki, 2012. "Conservation Auctions and Compliance: Theory and Evidence from Laboratory Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(2), pages 157-179, June.
    17. Colman, David & Pascual, Unai & Hodge, Ian, 2010. "Evolution of Land Conservation Policy," 14th ICABR Conference, June 16-18, 2010, Ravello, Italy 188082, International Consortium on Applied Bioeconomy Research (ICABR).
    18. White, Benedict & Raguragavan, Jananee & Chambers, Robert G., 2007. "Agri-environmental Regulation on the Back of a Data Envelopment Analysis," 81st Annual Conference, April 2-4, 2007, Reading University, UK 7963, Agricultural Economics Society.
    19. Raguragavan, Jananee & White, Ben & Chambers, Robert C., 2006. "Contracts for Land Retirement under Asymmetric Information," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 174722, Australian Agricultural and Resource Economics Society.
    20. Rob Fraser, 2002. "Moral Hazard and Risk Management in Agri‐environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 475-487, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ajarec:v:52:y:2008:i:2:p:203-212. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.