Moxey, White and Ozanne (1999) show how transfer payments, coupled with input quotas, can be used to design optimal truth-telling mechanisms for voluntary agri-environmental schemes under hidden information about compliance costs. In this note I derive the input charge/transfer payment analogue of this model and extend the model to analyse the design of contracts under hidden actions as well as hidden information. This leads to the following results: first, an input charge/transfer payment policy is more efficient than a quota where the regulator cannot observe compliance costs; second, and more significantly, where the regulator faces both hidden costs and hidden actions, an input charge policy allows for a relatively simple mechanism design.
|Journal||Journal of Agricultural Economics|
|Publication status||Published - 2002|