Regulating Nitrogen Pollution with Risk Averse Farmers under Hidden Information and Moral Hazard

Posted: 22 Feb 2007

See all articles by Philippe Bontems

Philippe Bontems

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ); French National Institute for Agricultural Research (INRA) - Mission Informatique

Alban Thomas

University of Toulouse 1 - Toulouse School of Economics (TSE); delete

Abstract

We consider a model of pollution regulation for a risk averse farmer involving hidden information, moral hazard, and risk-sharing. The representative farmer faces a production risk originating from nitrogen leaching, and privately observes the soil capacity in retaining nitrogen only after the regulation contract is signed. The latter specifies a transfer and a nitrogen quota, whose decomposition by the farmer among different production stages is unknown to the regulator. We first characterize the optimal solution to the regulator's problem. The sequential decision model is estimated on French crop production data, and the results are used to calibrate and simulate the optimal contract.

Suggested Citation

Bontems, Philippe and Thomas, Alban and Thomas, Alban, Regulating Nitrogen Pollution with Risk Averse Farmers under Hidden Information and Moral Hazard. American Journal of Agricultural Economics, Vol. 88, No. 1, pp. 57-72, February 2006, Available at SSRN: https://ssrn.com/abstract=964563 or http://dx.doi.org/10.1111/j.1467-8276.2006.00838.x

Philippe Bontems (Contact Author)

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ) ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France
(33) 05 61 12 85 22 (Phone)
(33) 05 61 12 85 20 (Fax)

French National Institute for Agricultural Research (INRA) - Mission Informatique ( email )

Toulouse School of Economics, INRA, Manufacture
des tabacs, Allée de Brienne
Toulouse, 31000
France
(33) 05 61 12 85 22 (Phone)
(33) 05 61 12 85 20 (Fax)

Alban Thomas

delete

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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