Moral Hazard and Risk Management in Agri-Environmental Policy

Robert Fraser

No 125086, 2002 Conference (46th), February 13-15, 2002, Canberra, Australia from Australian Agricultural and Resource Economics Society

Abstract: This paper develops the key finding of Hogan, Ozanne and Colman (2000) 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.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 22
Date: 2002-02
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Citations: View citations in EconPapers (37)

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Journal Article: Moral Hazard and Risk Management in Agri‐environmental Policy (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare02:125086

DOI: 10.22004/ag.econ.125086

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