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Utilizing Contingent Claims to Improve the Management of CAFOs

Author

Listed:
  • Gramig, Ben M.
  • Skees, Jerry R.
  • Black, J. Roy

Abstract

We propose a market-based approach to reducing the environmental risk posed by concentrated animal feeding operations (CAFOs). The dual problems of hidden information and hidden action faced by policymakers are considered alongside the competing incentives faced by the CAFO manager in a multiple principal-agent setting. A new approach that uses insurance-like contracts is introduced by use of the specific example of a swine operation with a lagoon-based manure management system. Index-based contingent claims contracts in tandem with third-party auditing and waste hauling options are introduced as a complement to regulatory frameworks designed to reduce negative externalities from production.

Suggested Citation

  • Gramig, Ben M. & Skees, Jerry R. & Black, J. Roy, 2004. "Utilizing Contingent Claims to Improve the Management of CAFOs," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 36(2), pages 297-312, August.
    • Handle: RePEc:cup:jagaec:v:36:y:2004:i:02:p:297-312_02
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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