Combating moral hazard in agri-environmental schemes: a multiple-agent approach

Rob Hart

European Review of Agricultural Economics, 2005, vol. 32, issue 1, 75-91

Abstract: We introduce uncertainty about farmer characteristics into the moral hazard problem facing a regulator offering agri-environmental contracts. Our model allows for a continuum of farmer compliance costs. For reasonable parameter values the model predicts high levels of cheating and intensive monitoring, contrary to the evidence. We therefore add variation in farmers' propensity to cheat, the regulator's assessment of which has a decisive effect on policy: if farmers are overwhelmingly honest then the regulator reduces monitoring and accepts that some dishonest farmers will escape undetected. Paradoxically, the total number of cheats may increase following an increase in the number of honest farmers. Copyright 2005, Oxford University Press.

Date: 2005
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European Review of Agricultural Economics is currently edited by Timothy Richards, Salvatore Di Falco, Céline Nauges and Vincenzina Caputo

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