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Incentive Contracts for Natura 2000 Implementation: A Mixed Model of Adverse Selection and Moral Hazard

Author

Listed:
  • Signe Anthon
  • Serge Garcia

    () (Laboratoire d'Economie Forestière, INRA - AgroParisTech)

  • Anne Stenger

    () (Laboratoire d'Economie Forestière, INRA - AgroParisTech)

Abstract

The implementation of nature conservation policy in the EU is often based on contracts between public authorities and landowners. We model these contracts in the presence of adverse selection and moral hazard when the outcome is uncertain. The results show that agents, who have high probability to reach a higher level of conservation, should be offered a contract where transfers depend on the final outcome with a bonus for a high state. When conservation measures are correlated with forest management, we show that the contractual measures involve distorded tranfers. Finally, we analyze the payment mechanisms used in France and Denmark and show that these mechanisms result in overcompensation and underperformance since they do not take the problem of moral hazard and natural variability into account.

Suggested Citation

  • Signe Anthon & Serge Garcia & Anne Stenger, 2006. "Incentive Contracts for Natura 2000 Implementation: A Mixed Model of Adverse Selection and Moral Hazard," Working Papers - Cahiers du LEF 2006-06, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.
  • Handle: RePEc:lef:wpaper:2006-06
    as

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    File URL: https://www.nancy.inra.fr/lef/content/download/2914/28879/version/1/file/doc_LEF_n06.pdf
    File Function: First version, 2006
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    References listed on IDEAS

    as
    1. Laffont, Jean-Jacques, 1995. "Regulation, moral hazard and insurance of environmental risks," Journal of Public Economics, Elsevier, vol. 58(3), pages 319-336, November.
    2. Theilen, Bernd, 2003. "Simultaneous moral hazard and adverse selection with risk averse agents," Economics Letters, Elsevier, vol. 79(2), pages 283-289, May.
    3. Boyer, Marcel & Laffont, Jean-Jacques, 1997. "Environmental risks and bank liability," European Economic Review, Elsevier, vol. 41(8), pages 1427-1459, August.
    4. Ing-Marie Gren, 2004. "Uniform or discriminating payments for environmental production on arable land under asymmetric information," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(1), pages 61-76, March.
    5. Russell, Noel P, 1993. "Efficiency of Rural Conservation and Supply Control Policies," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 20(3), pages 315-326.
    6. Moyle, Brendan, 1998. "Species conservation and the principal-agent problem," Ecological Economics, Elsevier, vol. 26(3), pages 313-320, September.
    7. Philippe Bontems & Alban Thomas, 2006. "Regulating Nitrogen Pollution with Risk Averse Farmers under Hidden Information and Moral Hazard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 57-72.
    8. Smith, Rodney B. W. & Shogren, Jason F., 2002. "Voluntary Incentive Design for Endangered Species Protection," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 169-187, March.
    9. Kline, Jeffrey D. & Alig, Ralph J. & Johnson, Rebecca L., 2000. "Forest owner incentives to protect riparian habitat," Ecological Economics, Elsevier, vol. 33(1), pages 29-43, April.
    10. Huennemeyer, Anne-Juliane & Rollins, Kimberly S., 2001. "Private Resource Management And Public Trust: Optimal Resource Conservation Contracts Under Asymmetric Information," Working Papers 34141, University of Guelph, Department of Food, Agricultural and Resource Economics.
    11. Slangen, Louis H G, 1997. "How to Organise Nature Production by Farmers," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 24(3-4), pages 508-529.
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    Citations

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    Cited by:

    1. Francesco Testa & Natalia M. Gusmerotti & D. Amirante & Marco Frey, 2012. "The role of negotiating tools in the environmental policy mix instruments: determinants and effects of Environmental Agreement," Working Papers 201202, Scuola Superiore Sant'Anna of Pisa, Istituto di Management.

    More about this item

    Keywords

    Natura 2000; Forest; Contracts; Mixed model; Adverse selection; Moral hazard.;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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