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Theory of Contracts and Agri-Environment Policies: A Budget Restriction Alters Standard Results of Mechanisms Design Theory

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  • Christensen, Jan

Abstract

Agri-environmental schemes are offered by a regulator to farmers. The farmer is to produce certain environmental goods and gets a pecuniary compensation for doing so. The problem of designing optimal schemes is dealt with using mechanisms design theory. This paper considers the situation where the regulator faces a budget constraint on total payments to farmers. It is shown, that 2 results of standard mechanisms design theory are affected when a budget restriction on total payments is present. 1) The "no distortion at the top rule" does not always hold. 2) It is not always optimal to offer heterogeneous farmers heterogeneous argi-environmental schemes.

Suggested Citation

  • Christensen, Jan, 2002. "Theory of Contracts and Agri-Environment Policies: A Budget Restriction Alters Standard Results of Mechanisms Design Theory," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24882, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae02:24882
    DOI: 10.22004/ag.econ.24882
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    References listed on IDEAS

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    1. Andrew Moxey & Ben White & Adam Ozanne, 1999. "Efficient Contract Design for Agri‐Environment Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(2), pages 187-202, May.
    2. F. Bonnieux & P. Rainelli & D. Vermersch, 1998. "Estimating the Supply of Environmental Benefits by Agriculture: A French Case Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(2), pages 135-153, March.
    3. Rodney B.W. Smith, 1995. "The Conservation Reserve Program as a Least-Cost Land Retirement Mechanism," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(1), pages 93-105.
    4. Francois Bonnieux & Pierre Rainelli & Dominique Vermersch, 1998. "Estimating the supply of environmental benefits by agriculture," Post-Print hal-01595403, HAL.
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