Contract design in agri-environmental schemes with fixed private transaction costs and countervailing incentives

Davide Viaggi

No 44322, 2008 International Congress, August 26-29, 2008, Ghent, Belgium from European Association of Agricultural Economists

Abstract: The aim of this paper is to test the relevance of considering private fixed transaction costs for contract design of Agri-Environmental Schemes, when transaction costs are negatively correlated to marginal compliance costs. In order to do so, a principal-agent model of contract design under adverse selection, including fixed private transaction costs, is developed. The model is applied to the design of payments in the Emilia Romagna region of Italy. The results show that fixed transaction costs in the range of those actually faced by farmers may significantly affect the optimal amount of environmental good to be produced by each farm type. In some cases, fixed transaction costs can even reverse the standard insight that more of a public good should be produced when the cost of its provision is lower (countervailing incentives). The results call for a higher attention to private transaction costs in the design of agri-environmental contracts.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 7
Date: 2008
New Economics Papers: this item is included in nep-cta and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae08:44322

DOI: 10.22004/ag.econ.44322

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