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Optimal Design of Agri‐environmental Schemes under Asymmetric Information for Improving Farmland Biodiversity

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  • José A. Gómez‐Limón
  • Carlos Gutiérrez‐Martín
  • Anastasio J. Villanueva

Abstract

Information asymmetry is one of the main obstacles to the effective design and implementation of agri‐environmental schemes (AES). The literature has generally addressed this issue through the use of principal‐agent models (PAM). We develop a PAM to support optimal design of a new AES for improving farmland biodiversity. We use the results of choice experiments to assess both the costs incurred by the agent for the provision of biodiversity and the resulting social benefits. We also make a number of novel contributions such as the inclusion of a non‐linear non‐compliance detection curve, a sensitivity analysis to identify which parameter estimates have a critical impact on PAM results, and analysis of the efficiency of different sanction scenarios. The results suggest that: (i) the second‐best solutions differ significantly from the optimal solutions attainable with perfect information, with farmers being strongly over‐compensated for the extra costs associated with improved biodiversity; (ii) monitoring levels should be higher; (iii) the sanction system should be tougher. Sensitivity analysis shows the need for accurate estimates of the marginal cost of public funds and the costs and benefits associated with the public goods, which represent the key parameters determining PAM results.

Suggested Citation

  • José A. Gómez‐Limón & Carlos Gutiérrez‐Martín & Anastasio J. Villanueva, 2019. "Optimal Design of Agri‐environmental Schemes under Asymmetric Information for Improving Farmland Biodiversity," Journal of Agricultural Economics, Wiley Blackwell, vol. 70(1), pages 153-177, February.
    • Handle: RePEc:bla:jageco:v:70:y:2019:i:1:p:153-177
    DOI: 10.1111/1477-9552.12279
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    Cited by:

    1. Canessa, Carolin & Venus, Terese E. & Wiesmeier, Miriam & Mennig, Philipp & Sauer, Johannes, 2023. "Incentives, Rewards or Both in Payments for Ecosystem Services: Drawing a Link Between Farmers' Preferences and Biodiversity Levels," Ecological Economics, Elsevier, vol. 213(C).
    2. Kelemen, Eszter & Megyesi, Boldizsár & Matzdorf, Bettina & Andersen, Erling & van Bussel, Lenny G.J. & Dumortier, Myriam & Dutilly, Céline & García-Llorente, Marina & Hamon, Christine & LePage, Annabe, 2023. "The prospects of innovative agri-environmental contracts in the European policy context: Results from a Delphi study," Land Use Policy, Elsevier, vol. 131(C).
    3. Christian Stetter & Philipp Mennig & Johannes Sauer, 2022. "Using Machine Learning to Identify Heterogeneous Impacts of Agri-Environment Schemes in the EU: A Case Study [The impact of agri-environmental schemes on farm performance in five EU member States: ," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 49(4), pages 723-759.
    4. Vergamini, Daniele & Viaggi, Davide & Raggi, Meri, 2020. "Evaluating the Potential Contribution of Multi-Attribute Auctions to Achieve Agri-Environmental Targets and Efficient Payment Design," Ecological Economics, Elsevier, vol. 176(C).
    5. Thiago Morello, 2023. "An Agri-environmental Scheme for Reducing Inputs Subjected to Accidental Spillage: An Application to Agricultural Burnings by Smallholders," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(2), pages 383-408, February.
    6. Zavalloni, Matteo & D’Alberto, Riccardo & Raggi, Meri & Viaggi, Davide, 2021. "Farmland abandonment, public goods and the CAP in a marginal area of Italy," Land Use Policy, Elsevier, vol. 107(C).
    7. Berthet, Alice & Vincent, Audrey & Fleury, Philippe, 2021. "Water quality issues and agriculture: An international review of innovative policy schemes," Land Use Policy, Elsevier, vol. 109(C).
    8. Granado-Díaz, Rubén & Villanueva, Anastasio J. & Gómez-Limón, José A., 2022. "Willingness to accept for rewilding farmland in environmentally sensitive areas," Land Use Policy, Elsevier, vol. 116(C).

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