Moral Hazard and Risk Management in Agri-environmental Policy

Robert Fraser

    Research output: Contribution to journalArticle

    33 Citations (Scopus)

    Abstract

    This paper develops the key finding of Ozanne, Hogan and Colman (2001) that risk aversion among farmers ameliorates the moral hazard problem in relation to agri-environmental policy compliance. It is shown that risk averse farmers who face uncertainty in their production income are more likely to comply with such a policy as a means of risk management. In addition, it is shown that a principal who has control over both the level of monitoring and the size of penalty, if detected, can reduce non-compliance by adjustments to these instruments which increase the variance of farmers' income but leave the expected penalty unchanged. It is concluded that risk management by both principals and agents has the potential to diminish the moral hazard problem, especially given proposed developments in agri-environmental policy in the European Union.
    Original languageEnglish
    Pages (from-to)475-487
    JournalJournal of Agricultural Economics
    Volume53
    Issue number3
    DOIs
    Publication statusPublished - 2002

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