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On the Use of Targeting to Reduce Moral Hazard in Agri‐environmental Schemes
Author(s) -
Fraser Rob
Publication year - 2004
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.2004.tb00113.x
Subject(s) - cheating , moral hazard , exploit , context (archaeology) , hazard , risk analysis (engineering) , business , focus group , environmental economics , computer science , psychology , computer security , economics , incentive , microeconomics , social psychology , marketing , ecology , biology , paleontology
This paper investigates the role of targeting in the context of agri‐environmental schemes involving monitoring and penalties. By separating participants into a target and a nontarget group the aim of targeting is to reduce the moral hazard problem. The paper analyses three approaches to targeting which have different implications for the level of monitoring resources and the focus is on reducing the extent of cheating by participants in the nontarget group. By complementing the adoption of targeting with appropriate adjustments to the monitoring/penalty parameters, it is shown how such an approach can exploit the risk aversion of participants to completely eliminate cheating by those participants in the nontarget group. The implementation of such a system of targeting is discussed in the context of existing agri‐environmental policies.