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Incentive contract and weather risk
[Contrat incitatif et risque climatique]

Author

Listed:
  • Patrice Loisel

    (ASB - Analyse des Systèmes et Biométrie - INRA - Institut National de la Recherche Agronomique)

  • Bernard B. Elyakime

    (Station d'économie et sociologie rurales - INRA - Institut National de la Recherche Agronomique)

Abstract

We study contracts designed to remunerate a farmer for the production of an ecosystem service with the payment dependent on the results of the farmer's actions and on weather conditions. Two contracts are proposed: the first takes into account both the results of the farmer's actions and a weather variable that reflects the actual atmospheric conditions during the life of the contract; the second bases the payment on the results alone incorporating only the average effect of weather. Social welfare is optimal when both the results and the specific atmospheric conditions are taken into account; however, this type of contract may be less acceptable to the farmer due to his perception of the level of risk involved.

Suggested Citation

  • Patrice Loisel & Bernard B. Elyakime, 2006. "Incentive contract and weather risk [Contrat incitatif et risque climatique]," Post-Print hal-02659400, HAL.
    • Handle: RePEc:hal:journl:hal-02659400
    DOI: 10.1007/s10640-006-9009-z
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    Cited by:

    1. Canessa, Carolin & Venus, Terese E. & Wiesmeier, Miriam & Mennig, Philipp & Sauer, Johannes, 2023. "Incentives, Rewards or Both in Payments for Ecosystem Services: Drawing a Link Between Farmers' Preferences and Biodiversity Levels," Ecological Economics, Elsevier, vol. 213(C).
    2. Canessa, Carolin & Venus, Terese & Wiesmeier, Miriam & Mennig, Philipp & Sauer, Johannes, 2023. "Farmers’ preferences over alternative AECS designs. Do the ecological conditions influence the willingness to accept result-based contracts?," 97th Annual Conference, March 27-29, 2023, Warwick University, Coventry, UK 334508, Agricultural Economics Society - AES.

    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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