An Agri-environmental Scheme for Reducing Inputs Subjected to Accidental Spillage: An Application to Agricultural Burnings by Smallholders

Thiago Morello ()
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Thiago Morello: Alameda da Universidade, Federal University of ABC

Environmental & Resource Economics, 2023, vol. 84, issue 2, No 2, 383-408

Abstract: Abstract Command-and-control (CAC) is the dominant approach for regulating agricultural fires in developing countries, despite its negative impact on low-income smallholders. Agri-environmental schemes are emerging as an alternative and this paper presents a scheme for hiring the reduction of inputs liable to be accidentally spilled. This is applied to burned area reduction by smallholders, with the governmental principal exposed to great risk due to the coupling of the need to advance subsidy and unobservability of both intended burned area and heterogeneous reduction cost. Optimal contract menus were derived for three situations differing in the number of contracts in which non-compliance could be detected irrespective of accidents’ size. A rate of 99% of the perfect information efficiency was achieved, as revealed by a numerical simulation based on a range of Brazilian Amazon datasources, including a discrete choice experiment, satellite fire data and mechanization cost. Results were robust to parametric sensitivity analysis, which also pointed to a small contribution by high cost smallholders of up to 10% of total reduction. CAC proved inefficient by pooling together smallholders differing substantially on cost, revealing that contracts are recommendable as a better policy option.

Keywords: Contract theory; Agri-environmental scheme; Accidental spillage; Agricultural fires; Smallholders; Amazon (search for similar items in EconPapers)
JEL-codes: Q18 Q52 Q58 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10640-022-00720-y

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