Asymmetric Information, Externalities and Incentives in Animal Disease Prevention and Control

Incentives influence behaviour while an understanding of farmer behaviour facilitates the control and prevention of infectious livestock disease. This paper lays out several perspectives on how information problems and other externalities affect biosecurity incentives. We use the principal–agent framework to examine livestock disease management in the presence of potential moral hazard and adverse selection. Moral hazard may apply to biosecurity decisions while adverse selection may apply to disease reporting. The example of compensation policies illustrates the importance of creating appropriate incentives: compensation must be sufficient to ensure early reporting but not so large as to discourage appropriate levels of biosecurity effort. Other cases of externalities are more diffuse than those modelled using principal–agent analysis, placing emphasis on third†party effects and coordination problems. Three examples are provided. One concerns free†riding when facing an endemic disease pool that can be managed by limiting sources and flows. Another regards coordination failure when securing against an exotic disease where farmer efforts complement and communicating actions are important. The last arises from absence of a risk market where an adverse infrastructural support externality could be managed by disease outbreak insurance.