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Hidden action, risk aversion and variable fines in agri‐environmental schemes *
Author(s) -
Ozanne Adam,
White Ben
Publication year - 2008
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/j.1467-8489.2008.00408.x
Subject(s) - risk aversion (psychology) , scheme (mathematics) , action (physics) , variable (mathematics) , economics , microeconomics , econometrics , environmental economics , mathematics , expected utility hypothesis , mathematical economics , mathematical analysis , physics , quantum mechanics
This note analyses the design of agri‐environmental schemes for risk‐averse producers whose input usage is only observable by costly monitoring. The scheme penalises producers in proportion to input use in excess of a quota. A striking result is that if the scheme is designed in such a way that producers always comply with the quota, risk aversion is not relevant in determining the level of input use.