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Optimal Design of a Voluntary Green Payment Program under Asymmetric Information

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  • Wu, JunJie
  • Babcock, Bruce A.

Abstract

Green payment programs, where the government pays farmers directly for environmental benefits, are an alternative to the current method of achieving environmental benefits which restricts farming practices in exchange for deficiency payments. This article presents a voluntary green payment program using the principles of mechanism design under asymmetric information. Information asymmetry arises because the government knows only the distribution of farmers' production situations, rather than farm-specific information. The program is demonstrated with irrigated corn production in the Oklahoma high plains. A green payment program can reduce budget costs and pollution, while increasing the net social value of corn production.

Suggested Citation

  • Wu, JunJie & Babcock, Bruce A., 1995. "Optimal Design of a Voluntary Green Payment Program under Asymmetric Information," ISU General Staff Papers 199512010800001024, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genstf:199512010800001024
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    References listed on IDEAS

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    1. Wu, JunJie & Mapp, Harry P., Jr. & Bernardo, Daniel J., 1994. "A Dynamic Analysis Of The Impact Of Water Quality Policies On Irrigation Investment And Crop Choice Decisions," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 26(2), pages 1-20, December.
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    7. 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.
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