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Beneficial selection and the efficient procurement of ecosystem services

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  • Russell, Noel P.
  • Sauer, Johannes

Abstract

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.

Suggested Citation

  • Russell, Noel P. & Sauer, Johannes, 2012. "Beneficial selection and the efficient procurement of ecosystem services," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124894, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea12:124894
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    File URL: http://ageconsearch.umn.edu/record/124894/files/Efficient%20Procurement%20of%20Ecosystem%20Services_AAEA_2012x.pdf
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    References listed on IDEAS

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    6. Hanming Fang & Michael P. Keane & Dan Silverman, 2008. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 303-350, April.
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    8. 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.
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    10. Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
    11. 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.
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    Keywords

    Agricultural and Food Policy;

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