Optimal Forestry Contracts under Asymmetry of Information |
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Authors: | Francis Didier Tatoutchoup |
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Institution: | York University, Toronto, Canada |
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Abstract: | In this paper, I analyze optimal royalty contracts in forestry when the harvesting firm has private information on the cost of harvesting. This infinite horizon forest rotation model with asymmetry of information on the cost parameter results in a dynamic incentive problem. Depending on whether the costs are correlated over time or not, the firm either receives rent or receives no rent, associated with the continuation part of the rotation choice. I characterize the optimal contract explicitly in both cases. I also examine the loss in expected welfare surplus resulting from the use of a linear contract instead of the more general non‐linear contract. |
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Keywords: | Adverse selection auctions dynamic contracts Faustmann rule forest rotation D44 D82 D86 Q23 Q24 |
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