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On the optimal design of income support and agri-environmental regulation

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  • Bontems, Philippe

Abstract

In this paper, we develop a model of regulation for a set of heterogenous farmers whose production yields to environmental externalities. The goal of the regulator is first to offer some income support depending on collective preferences towards income redistribution and second to internalize externalities. The optimal policy is constrained by the information available. We first consider the second best where the regulator is able to observe all individuals decisions in terms of inputs and individual profit, but not the individual farming labor supply. We characterized the generalized transfer in function of the desire to redistribute and the underlying characteristics of the production process. In a second step, we assume that the regulator has only information on aggregate consumption of inputs and hence can only tax/subsidy linearly inputs and output. However, because the accounting profit remains observable, a non linear transfer of profit is still part of the optimal policy. In the last part of the paper, we endogenize the market price of land and examine how the optimal policy should be modified.

Suggested Citation

  • Bontems, Philippe, 2008. "On the optimal design of income support and agri-environmental regulation," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6246, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea08:6246
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    File URL: http://purl.umn.edu/6246
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    References listed on IDEAS

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    1. Brent Hueth, 2000. "The Goals of U.S. Agricultural Policy: A Mechanism Design Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 14-24.
    2. Feng, Hongli, 2007. "Green payments and dual policy goals," Journal of Environmental Economics and Management, Elsevier, vol. 54(3), pages 323-335, November.
    3. Robert Innes, 2003. "Stop and Go Agricultural Policies with a Land Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 198-215.
    4. Jean-Marc Bourgeon & Robert G. Chambers, 2000. "Stop-and-Go Agricultural Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 1-13.
    5. Philippe Bontems & Gilles Rotillon & Nadine Turpin, 2008. "Acceptable reforms of agri-environmental policies," Revue d'├ęconomie politique, Dalloz, vol. 118(6), pages 847-883.
    6. Chantal Le Mouel, 2004. "Impacts of alternative agricultural income support schemes on multiple policy goals," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 125-148, June.
    7. Philippe Bontems & Gilles Rotillon & Nadine Turpin, 2005. "Self-Selecting Agri-environmental Policieswith an Application to the Don Watershed," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(3), pages 275-301, July.
    8. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
    9. Sheriff, Glenn, 2008. "Optimal environmental regulation of politically influential sectors with asymmetric information," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 72-89, January.
    10. Wu, JunJie & Babcock, Bruce A., 1995. "Optimal Design Of A Voluntary Green Payment Program Under Asymmetric Information," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 20(02), December.
    11. Howard D. Leathers, 1992. "The Market for Land and the Impact of Farm Programs on Farm Numbers," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(2), pages 291-298.
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    More about this item

    Keywords

    asymmetric information; agricultural policy; agri-environmental policy; income support; Agricultural and Food Policy; Environmental Economics and Policy; Q18; Q12; Q58;

    JEL classification:

    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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