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Contract Design for the Purchase of Environmental Goods from Agriculture
Author(s) -
Wu JunJie,
Babcock Bruce A.
Publication year - 1996
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1243850
Subject(s) - deadweight loss , economics , payment , agriculture , stewardship (theology) , microeconomics , natural resource economics , information asymmetry , product (mathematics) , welfare , finance , ecology , geometry , mathematics , politics , political science , law , market economy , biology
An environmental stewardship program, whereby farmers are paid directly for the environmental goods they provide, is developed by combining the microparameter distribution model with mechanism design principles. The program overcomes the information asymmetry between farmers and governments and accounts for the deadweight losses from distortionary taxes. The characteristics of optimal input and payment schedules of the program are derived. These optimal schedules are determined by the tradeoffs between farming profits, environmental benefits, and deadweight losses from taxes, and are second‐best except under restrictive conditions on deadweight losses from taxes and on the marginal product of inputs and marginal pollution costs.