Hart, Robert
- Department of Economics, Swedish University of Agricultural Sciences
Abstract
We introduce uncertainty about farmer characteristics into the moral hazard problem facing a regulator offering agri-environmental contracts. Our model allows for a continuum of farmer compliance costs. For reasonable parameter values the model predicts high levels of cheating and intensive monitoring, contrary to the evidence. We therefore add variation in farmers' propensity to cheat, the regulator's assessment of which has a decisive effect on policy: if farmers are overwhelmingly honest then the regulator reduces monitoring and accepts that some dishonest farmers will escape undetected. Paradoxically, the total number of cheats may increase following an increase in the number of honest farmers.
Keywords
agri-environmental policy; moral hazard; adverse selection; principal-agent model
Published in
European Review of Agricultural Economics
2005, volume: 32, number: 1, pages: 75-91
Publisher: OXFORD UNIV PRESS
SLU Authors
UKÄ Subject classification
Social Sciences
Economics and Business
Publication identifier
- DOI: https://doi.org/10.1093/erae/jbi002
Permanent link to this page (URI)
https://res.slu.se/id/publ/6310