Incentive‐Compatible Pollution Control Policies Under Asymmetric Information on Both Risk Preferences and Technology

16 Pages Posted: 21 Apr 2020

See all articles by Jeffrey M. Peterson

Jeffrey M. Peterson

Independent

Richard N. Boisvert

Cornell University - Agricultural Economics

Date Written: May 2004

Abstract

This article proposes a method to accommodate asymmetric information on farmers' risk preferences in designing voluntary environmental policies. By incorporating stochastic efficiency rules in a mechanism design problem, the government can find incentive‐compatible policies by knowing only the general class of risk preferences among farmers. The model also accounts for hidden information on technology types and input use. The method is applied empirically to simulate a pollution control program in New York. Results suggest that participation incentives would be inadequate for many risk‐averse producers if the government does not account for the diversity in risk preferences.

Keywords: asymmetric information, mechanism design, nonpoint pollution, risk preferences

Suggested Citation

Peterson, Jeffrey M. and Boisvert, Richard N., Incentive‐Compatible Pollution Control Policies Under Asymmetric Information on Both Risk Preferences and Technology (May 2004). American Journal of Agricultural Economics, Vol. 86, Issue 2, pp. 291-306, 2004, Available at SSRN: https://ssrn.com/abstract=3581074 or http://dx.doi.org/10.1111/j.0092-5853.2004.00579.x

Richard N. Boisvert

Cornell University - Agricultural Economics ( email )

248 Warren Hall
Ithaca, NY 14853
United States
607-255-4545 (Phone)

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