Designing Voluntary Agri-environment Policy With Hidden Information and Hidden Action: a Note

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    Abstract

    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.
    Original languageEnglish
    Pages (from-to)353-360
    JournalJournal of Agricultural Economics
    Volume53
    Issue number2
    Publication statusPublished - 2002

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