Incentive Contract and Weather Risk

Patrice Loisel and Bernard Elyakime ()

Environmental & Resource Economics, 2006, vol. 35, issue 2, 99-108

Abstract: We study contracts designed to remunerate a farmer for the production of an ecosystem service with the payment dependent on the results of the farmer’s actions and on weather conditions. Two contracts are proposed: the first takes into account both the results of the farmer’s actions and a weather variable that reflects the actual atmospheric conditions during the life of the contract; the second bases the payment on the results alone incorporating only the average effect of weather. Social welfare is optimal when both the results and the specific atmospheric conditions are taken into account; however, this type of contract may be less acceptable to the farmer due to his perception of the level of risk involved. Copyright Springer Science+Business Media, Inc. 2006

Keywords: ecosystem service; incentive contract; moral hazard; risk; weather; D8; Q2 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10640-006-9009-z

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