Moral hazard and adverse selection effects of cost‐of‐production crop insurance: evidence from the Philippines

This article examines the moral hazard and adverse selection effects of cost‐of‐production (COP) crop insurance products. Building on existing crop insurance models of moral hazard, as well as a survey‐based data set that allows us to separately identify moral hazard from adverse selection, we find evidence that farmers insured under COP contracts spend more on chemical fertilizers and pesticides (i.e. those inputs whose costs determine the indemnity payments). However, since these same COP insured farmers are still likely to use less inputs (like effort) whose costs do not enter the indemnity payment formula, and yield depends on both types of inputs (i.e. the determinants and non‐determinants of the indemnity payments), the final moral hazard effect of COP insurance on yields is ambiguous. Our analysis also suggests that farmers who tend to spend less on chemical fertilizers and pesticides are the ones with private information on soil conditions and pest incidence. These are the types of farmers who adversely select into COP contracts that only cover weather related losses.     

Self-enforcing contracts in agriculture

This article examines a self-enforcing contract between a risk-neutralprincipal and a risk-averse agent who is able to hold up valuesex post. It shows that risk aversion and variance can only partlyexplain the contract's incentive intensity. Ex post bargainingpower and outside options will also determine contract choice.If the agent's ex post bargaining position is weak, the principalcannot commit to high-powered incentives, whereas if the agent'sex post bargaining position is good, the agent cannot committo low-powered incentives. The model may thus explain some puzzlesin agricultural contracts, in particular why risk-averse agentssometimes accept to be governed by high-powered incentive contractsthat are quite similar to fixed rental contracts, and why risk-neutralagents are sometimes offered share contracts with lower-poweredincentives.     

Assessing effects of federal crop insurance supply on acreage and yield of specialty crops

Crop insurance may affect harvested acreage and yield by influencing producers’ behavior such as land allocation and input use. Although specialty crops are a major source of farm income, especially on the U.S. west coast, they have not received as much attention as field crops in previous empirical studies. This paper assesses the effect of moral hazard and adverse selection associated with the federal crop insurance program (FCIP) on the acreage and yield of major specialty crops in California. An econometric method that expands the switching regression model is developed to assess the effect. Results suggest that federal crop insurance can change specialty crop growers’ production responses to climate and soil conditions. The moral hazard effect tends to increase the acreage and yield of the specialty crops, whereas the adverse selection effect tends to have the opposite effect. The overall effect of the FCIP on acreage and yield of specialty crops is found to be moderate.     

Livestock Disease Indemnity Design When Moral Hazard Is Followed by Adverse Selection

Averting or limiting the outbreak of infectious disease in domestic livestock herds is an economic and potential human health issue that involves the government and individual livestock producers. Producers have private information about preventive biosecurity measures they adopt on their farms prior to outbreak ( ex ante moral hazard), and following outbreak they possess private information about whether or not their herd is infected ( ex post adverse selection). We investigate how indemnity payments can be designed to provide incentives to producers to invest in biosecurity and report infection to the government in the presence of asymmetric information. We compare the relative magnitude of the first- and second-best levels of biosecurity investment and indemnity payments to demonstrate the tradeoff between risk sharing and efficiency, and we discuss the implications for status quo U.S. policy.     

The roles of risk preferences,selection, and uncertain returns on land contracts

Using panel data on a statistically representative sample of Iowa farmland parcels from 1997 to 2017, we analyze the factors determining whether land is farmed by the owner or rented out under a cash rent or crop share contract. The landowner's decision to rent or operate the land depends on the distribution of expected net returns to the land, and so estimates of the factors affecting rental terms will be biased if the sample only includes rental contracts and excludes the owner-operator. Land with higher mean and/or lower variance of expected net returns is most likely to be rented out. Participants in the rental market will include the most risk-averse landowners and the least risk-averse tenants, while the least risk-averse landowners operate their own land. Our empirical results suggest that the rising use of cash rent contracts and declining incidence of owner-operation and crop-share rental contracts is consistent with falling coefficient of variation in expected net returns per acre.     

The behavioural economics of health protection: an empirical evidence of moral hazard in U.S. hog farms

Healthy workers are productive. When firms could not pay according to worker's health preventative effort levels due to asymmetric information, they provide an incentive contract to cope with the moral hazard problem. We test the existence of ex ante moral hazard in the U.S. hog farms. Using a national employee survey data in 1995 and in 2000, we find that even though employers provide protective devices to reduce the negative effects of poor environmental conditions on employees’ respiratory health, many employees do not wear the devices, which is consistent with the moral hazard behaviours. The probability of using a protective device is 10 per cent lower in the farms with an agency problem than in family farms without an agency problem, even after we control for medical insurance provision types. Reducing pollutants, providing protective devices and instilling the importance of using masks help to alleviate moral hazard incidences.     

Optimal Design of Agri‐environmental Schemes under Asymmetric Information for Improving Farmland Biodiversity

Information asymmetry is one of the main obstacles to the effective design and implementation of agri‐environmental schemes (AES). The literature has generally addressed this issue through the use of principal‐agent models (PAM). We develop a PAM to support optimal design of a new AES for improving farmland biodiversity. We use the results of choice experiments to assess both the costs incurred by the agent for the provision of biodiversity and the resulting social benefits. We also make a number of novel contributions such as the inclusion of a non‐linear non‐compliance detection curve, a sensitivity analysis to identify which parameter estimates have a critical impact on PAM results, and analysis of the efficiency of different sanction scenarios. The results suggest that: (i) the second‐best solutions differ significantly from the optimal solutions attainable with perfect information, with farmers being strongly over‐compensated for the extra costs associated with improved biodiversity; (ii) monitoring levels should be higher; (iii) the sanction system should be tougher. Sensitivity analysis shows the need for accurate estimates of the marginal cost of public funds and the costs and benefits associated with the public goods, which represent the key parameters determining PAM results.     

水利PPP项目合同争议的多元化解决机制研究

通过对我国水利PPP项目合同争议解决现状的分析,发现在理论、立法和实务上均存在不同程度的矛盾与混乱。研究认为,解决水利PPP项目合同争议既要兼顾公平与效率,也要平衡成本与收益。因此,整合既有争议解决方式,对潜在解决途径进行重构,因循"拆分+双阶"理论,在现行法律规范体系内构建和完善水利PPP项目合同争议解决多元化机制十分重要。     

Equivalence of Input Quotas and Input Charges under Asymmetric Information in Agri‐environmental Schemes

A model of adverse selection and moral hazard in agri‐environmental schemes is developed based on the input quota mechanism of Moxey et al. (Journal of Agricultural Economics, Vol. 50, (1999) pp. 187–202) and Ozanne et al. (European Review of Agricultural Economics, Vol. 28, (2001) pp. 329–347), rather than the input charge mechanism of White (Journal of Agricultural Economics, Vol. 53, (2002) pp. 353–360), but the variable fine of the latter rather than the fixed fine assumed by Ozanne et al. (European Journal of Agricultural Economics, Vol. 28, (2001) pp. 329–347) is used. Incentive‐compatible contracts, including the optimal probabilities of detection (and, therefore, monitoring frequencies and costs) for more and less efficient farmers, are identified. It is shown that the input charge and input quota approaches lead to identical outcomes – in terms of abatement levels, compensation payments, monitoring costs and probabilities of detection – confirming the equivalence of input quotas and input charges under asymmetric information. It is also shown that the optimal contracts are independent of the risk preferences of farmers with regard to being caught cheating.     

基于委托代理博弈的水利工程PPP项目逆向选择与道德风险分析

为保证水利工程PPP项目的顺利建设与运营,论文针对水利工程PPP项目的特点,在分析其逆向选择和道德风险产生原因和危害的基础上,构建了无不确定性的委托代理模型和有不确定性但可监督的委托代理模型,并对模型进行求解和分析,针对性地提出制定激励机制、提高政府监管效率和加大惩罚力度三个建议,以减少水利工程PPP项目中逆向选择和道德风险问题的发生。     

Use of Compliance Rewards in Agri‐environmental Schemes

Ensuring that farmers comply with the terms of agri‐environmental schemes is an important issue. This paper explores the use of a ‘compliance–reward’ approach under heterogeneous net compliance costs with respect to cost‐share working lands programmes such as the Environmental Quality Incentives Program (EQIP) in the United States. Specifically, we examine the use of a reward under asymmetric information and output price uncertainty. We examine two possible sources of financing under the assumption of budget neutrality: (i) funds obtained by reducing monitoring effort; and (ii) money saved by reducing the number of farmers enrolled. We discuss the advantages and disadvantages of each source of funding and analyse these numerically for both risk‐neutral and risk‐averse farmers. We also examine the trade‐off between increased expenditure on monitoring effort and compliance rewards when additional budgetary resources are available. We show that under certain conditions a compliance reward can increase compliance rates. For risk‐averse farmers, however, conditions that ensure a positive outcome become more restrictive.     

Moral Hazard,Targeting and Contract Duration in Agri‐Environmental Policy

This article extends the multi‐period agri‐environmental contract model of Fraser (Journal of Agricultural Economics, Vol. 55 , (2004) pp. 525–540) to include a more realistic specification of the inter‐temporal penalties for non‐compliance, and therefore of the inter‐temporal moral hazard problem in agri‐environmental policy design. It is shown that a farmer has an unambiguous preference for cheating early over cheating late in the contract period based on differences in the expected cost of compliance. It is then shown how the principal can make use of this unambiguous preference to target monitoring resources intertemporally, and in so doing, to encourage full contract duration compliance.     

The effect of spatial interdependencies on prioritization and payments for environmental services

Empirical studies and on-the-ground policies assessing optimal selection of projects in the context of payments for environmental services programs rarely consider spatial proximity of one project to other projects. This occurs despite evidence from theoretical and ecological studies that benefits are often spatially interdependent. This paper develops a flexible construct of “spatial synergy benefits” using the principles of Newtonian gravity similar to efforts in other application areas. This approach is novel to the literature on environmental preservation and, as a systematic method, can account for a wide variety of spatial interdependencies. The empirical setting for the application is farm and forest preservation in Delaware, with a quadratic knapsack algorithm used to select the optimal set of parcels. Application results show that the specific level of the spatial synergy benefit measure does not significantly alter the number of parcels and acreage preserved, but that the composition of the optimal set changes as agglomeration preferences increase. These changes in the optimal targeted set indicate a potential bias in past research on PES selection. Policy makers informed by methods that do not explicitly account for spatial agglomeration preferences often make incorrect investment choices from a cost-effectiveness perspective.     

基于IFHA算子的水利工程总承包模式选择

为了提供一种公正、合理的水利工程总承包模式选择方法,将IFHA直觉模糊混合平均算子引入水利工程总承包模式决策模型,在建立适用于水利工程的选择指标体系和重新对总承包模式进行细分的基础上,利用IFHA直觉模糊混合平均算子确定指标权重,并集结各专家选择判断意见,利用IFWA直觉模糊加权算子集结各备选模式所有指标判断信息,最终得到备选模式综合指标值,确定某特定水利工程适用的总承包模式。经算例分析,验证该模型符合工程实际,且充分削弱了专家主观性影响,保证了判断信息在集结过程中的完整性。     

Comparison of land use change in payments for environmental services and National Biological Corridor Programs

Costa Rica established the National Biological Corridor Program in 2006. Under the National Biological Corridor Program, the long-running Payment for Environmental Services Program was newly prioritized into biological corridors throughout the country. The National Biological Corridor Program caused a nationwide spatial shift in placement of payments for environmental services throughout Costa Rica. We classified ASTER 15-m resolution imagery in a central Costa Rica corridor connecting the eastern and western protected areas networks to analyze the change in forests during the National Biological Corridor Program with its targeted payments for environmental services effort. We used object-based classification methods, and compared land cover changes over an initial four-year period of corridor policy enactment. We calculated the changes within PES properties and outside of PES regions, and we also calculated forest patch metrics during the same time period. Results indicate a decline in forest cover over the study period, along with an increase in urban and pasture land covers, with higher change and loss of forest centered inside of the biological corridor, near the construction area for the new San Carlos highway, and within eastern pasture areas. We also saw a higher percentage of forest loss inside of the biological corridor area as compared to areas outside of the biological corridor. Forest loss was drastically less within current and historic PES properties, as compared to the overall study region. Across the entire study region, patch metrics show a decrease in the number of patches and a slight decrease in average patch size. These results suggest that current and past designation of PES prevents forest loss within PES properties while the current designation of priority conservation status via the National Biological Corridor Program is not increasing connectivity and forest conservation. This is shown by increased land use change and a decrease in forest associated with biological corridor designation. These results are antithetical to the goals of the National Biological Corridor Program.     

Exploring the environmental value of ecosystem services for a river basin through a spatial multicriteria analysis

Environmental quality preservation and nature conservation are complex land use planning problems, involving not only environmental aspects but also socio-economic and operational factors and represent ecosystem services of fundamental importance to human well-being, for health, livelihoods and survival. The present paper proposes a Multicriteria Spatial Decision Support System (MC-SDSS) development for the assessment of the environmental quality of the river basin of the Pellice river in the Province of Turin (Italy) with the objective of increasing awareness of environmental issues in the territorial planning phase. In order to fulfill this goal, the environmental quality issues were divided into two main aspects, “naturalness” and pressures”, which represent the strengths and the weaknesses of the territory. Different criteria were considered for each theme and were integrated into composite maps by a weighted linear combination of factors resulting from a focus group with several experts in different fields. The results of this approach generated a final suitability map of the study area. The map identifies some critical zones that need mitigation measures and highlights areas with high environmental quality which require future specific monitoring procedures and valorization actions. The application was performed by means of the IDRISI software. This paper is based on an integrated approach which facilitates the comprehension of complex phenomena and aims at exploring innovative MCDA models in the field of the environmental quality preservation assessment of territorial transformation.     

Accounting for farmers’ production responses to environmental restrictions within landscape planning

Environmental planning aims to safeguard and foster the ecological functionality of agricultural landscapes. In order to reach a sustainable development of agricultural landscapes, in addition to ecological objectives socio-economic ones also need to be considered. In this context, the authors draw attention to three points. First, whenever ecologically sensitive areas (“ecological sites”) are used for agricultural production, it is necessary to take account of the fact that farmers tend to adapt to environmental requirements by production responses outside the ecological site itself. Second, in order to identify the socially most “desirable” land-use responses it is necessary to supplement the above-mentioned environmental objectives by socio-economic ones. Third, when choosing an appropriate model for such multi-criteria decision analysis, the question of substitutability between criteria is of utmost importance. The paper discusses the above-mentioned issues against the background of a case study of environmental planning for an ecologically very valuable agricultural landscape in Germany, the Bayerisches Donauried. Two models of multi-criteria decision analysis (MCDA) are applied, one based on the “single synthesizing criterion” method, and the other one based on the “synthesis by outranking” method. The models serve to evaluate four different land-use options, using criteria mainly derived from landscape functions and weights gained from interviews with major stakeholders. The paper presents the models’ results concerning the ranking of the different land-use options and discusses the implications for agri-environmental policies and rural development planning.