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Beneficial selection and the efficient procurement of ecosystem services

  • Russell, Noel P.
  • Sauer, Johannes

It has bee suggested by many authors that adverse selection in government schemes for the procurement of ecosystem services impairs both the efficiency of these schemes and the value for money that they deliver to taxpayers and funding agencies. However, recent research considers that these types of procurement system may not be characterised by adverse selection but by what might labelled as “beneficial selection”. And this research goes on to show that even with beneficial selection there will still remain potential inefficiency arising from a continuing need for payment of information rents to the participating farmers in the scheme. This paper presents and analyses a model that represents the tradeoffs in designing efficient mechanisms for the procurement of ecosystem services. A key characteristic is the payment of informational rents to participants so as to increase overall efficiency. The impact of beneficial selection is carefully explored in this context, and we investigate implications for policy makers. In particular we suggest that some conventional policy advice in this area, that ignores the possibility of beneficial selection, may be mis-directed.

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File URL: http://purl.umn.edu/124894
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Paper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124894.

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Date of creation: 12 Aug 2012
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Handle: RePEc:ags:aaea12:124894
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  1. Mathias Dewatripont & Patrick Bolton, 2005. "Contract theory," ULB Institutional Repository 2013/9543, ULB -- Universite Libre de Bruxelles.
  2. Hanming Fang & Michael P. Keane & Dan Silverman, 2006. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," NBER Working Papers 12289, National Bureau of Economic Research, Inc.
  3. Khanna, Madhu & Isik, Murat & Zilberman, David, 2002. "Cost-effectiveness of alternative green payment policies for conservation technology adoption with heterogeneous land quality," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 27(2), August.
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  5. JunJie Wu & Bruce A. Babcock, 1996. "Contract Design for the Purchase of Environmental Goods from Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 935-945.
  6. Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
  7. Madhu Khanna & Amy Ando, 2009. "Science, economics and the design of agricultural conservation programmes in the US," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 52(5), pages 575-592.
  8. Emmanuelle Quillérou & Rob Fraser, 2010. "Adverse Selection in the Environmental Stewardship Scheme: Does the Higher Level Stewardship Scheme Design Reduce Adverse Selection?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 369-380.
  9. Frank Wätzold & Martin Drechsler, 2005. "Spatially Uniform versus Spatially Heterogeneous Compensation Payments for Biodiversity-Enhancing Land-Use Measures," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(1), pages 73-93, 05.
  10. Claassen, Roger & Cattaneo, Andrea & Johansson, Robert, 2008. "Cost-effective design of agri-environmental payment programs: U.S. experience in theory and practice," Ecological Economics, Elsevier, vol. 65(4), pages 737-752, May.
  11. Andrew Moxey & Ben White & Adam Ozanne, 1999. "Efficient Contract Design for Agri-Environment Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(2), pages 187-202.
  12. Canton, Joan & De Cara, Stéphane & Jayet, Pierre-Alain, 2009. "Agri-environmental schemes: Adverse selection, information structure and delegation," Ecological Economics, Elsevier, vol. 68(7), pages 2114-2121, May.
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