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

Listed author(s):
  • Adam Ozanne
  • Ben White

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.

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File URL: http://hdl.handle.net/10.1111/j.1467-8489.2008.00408.x
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Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.

Volume (Year): 52 (2008)
Issue (Month): 2 (June)
Pages: 203-212

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Handle: RePEc:bla:ajarec:v:52:y:2008:i:2:p:203-212
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  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(02), August.
  2. 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.
  3. 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, January.
  4. 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.
  5. 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.
  6. Chongwoo Choe & Iain Fraser, 1999. "Compliance Monitoring and Agri-Environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 468-487.
  7. 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.
  8. Rob Fraser, 2002. "Moral Hazard and Risk Management in Agri-environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 475-487.
  9. 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.
  10. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Bond, Gary E. & Wonder, Bernard, 1980. "Risk Attitudes Amongst Australian Farmers," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 24(01), April.
  16. 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.
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