Optimal Regulation Under Asymmetric Information And Risk Aversion With An Application To Pollution Control
We consider a general model of regulation for a risk-averse agent who observes her private-information parameter after the contract is signed. The latter specifies a quota for input used in production, whose decomposition among different production stages is unknown to the regulator. We characterize the optimal solution to the regulator problem, under general assumptions on net expected social surplus and the agent utility function. We apply the model to the case of pollution control by an environmental agency, where the agent is a risk-averse farmer facing production risk because of nitrogen leaching, and the private-information parameter measures the soil capacity in retaining nitrogen. The farmer sequential decision model is estimated on French crop production data and the results are then used to calibrate and simulate the optimal contract.
|Date of creation:||2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philippe Bontems & Alban Thomas, 2000. "Information Value and Risk Premium in Agricultural Production: The Case of Split Nitrogen Application for Corn," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 59-70.
- Bruce A. Babcock & David A. Hennessy, 1996.
"Input Demand under Yield and Revenue Insurance,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 78(2), pages 416-427.
- Bruce A. Babcock & Joseph A. Herriges, 1994. "Input Demand Under Yield and Revenue Insurance," Center for Agricultural and Rural Development (CARD) Publications 94-wp127, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- Babcock, Bruce A. & Hennessy, David A., 1996. "Input Demand Under Yield and Revenue Insurance," Staff General Research Papers 794, Iowa State University, Department of Economics.
- Laffont, Jean-Jacques & Rochet, Jean-Charles, 1998. "Regulation of a Risk Averse Firm," Games and Economic Behavior, Elsevier, vol. 25(2), pages 149-173, November.
- Babcock, Bruce A., 1992. "Effects of Uncertainty on Optimal Nitrogen Applications (The)," Staff General Research Papers 10588, Iowa State University, Department of Economics.
- Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May.
- Chavas, Jean-Paul & Kristjanson, Patricia M. & Matlon, Peter, 1991. "On the role of information in decision making : The case of sorghum yield in Burkina Faso," Journal of Development Economics, Elsevier, vol. 35(2), pages 261-280, April.
- Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
- Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-90, September.
- Feinerman, Eli & Kwan, E. & Johnson, Stanley R., 1990. "Uncertainty and Split Nitrogen Application in Corn Production," Staff General Research Papers 328, Iowa State University, Department of Economics.
- Lambert, David K., 1990. "Risk Considerations In The Reduction Of Nitrogen Fertilizer Use In Agricultural Production," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(02), December.
- Thomas, Alban & Bontems, Philippe, 1998. "Information Value And Risk Premium In Agricultural Production Under Risk: The Case Of Split Nitrogen Application For Corn," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20844, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Feinerman, Eli & Choi, E. Kwan & Johnson, Stanley R., 1990. "Uncertainty and Split Nitrogen Application in Corn Production," Staff General Research Papers 10598, Iowa State University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea01:20727. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.