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Research article - Peer-reviewed, 2011

Agri-environmental policy and moral hazard under multiple sources of uncertainty

Blandford, David; Yano, Yuki


Risk aversion has been considered a factor in mitigating the moral hazard problem in agri-environmental policy. If farmers face multiple sources of uncertainty, however, risk aversion could contribute to the problem. Focusing on a required reduction in the use of a potentially damaging input under an agri-environmental scheme, we address the implications of risk aversion for a farmer's decision on compliance. We show that risk aversion can indeed mitigate the moral hazard problem, but, if a required change in production practices increases output risk, the impact of risk aversion is ambiguous.


agri-environmental programmes; moral hazard; price and production uncertainty; compliance; risk-input relationships

Published in

European Review of Agricultural Economics
2011, Volume: 38, number: 1, pages: 141-155

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    Environmental Sciences related to Agriculture and Land-use

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