BILATERAL INFORMATION ASYMMETRY IN THE DESIGN OF AN AGRI-ENVIRONMENTAL PROGRAM: AN APPLICATION TO PEATLAND RETIREMENT IN NORWAY
Open Access
Author:
Cho, Wonjoo
Graduate Program:
Agricultural, Environmental and Regional Economics
Degree:
Doctor of Philosophy
Document Type:
Dissertation
Date of Defense:
May 23, 2016
Committee Members:
David Blandford, Dissertation Advisor/Co-Advisor David Blandford, Committee Chair/Co-Chair James Samuel Shortle, Committee Member Katherine Yoder Zipp, Committee Member Seth Adam Blumsack, Outside Member
Keywords:
Agri-environmental Policy Information Asymmetry Greenhouse gas mitigation Peatland Principal-Agent Model
Abstract:
Estimates indicate that agriculture is a significant source of global greenhouse gas (GHG) emissions. GHG mitigation through agri-environmental programs could be important in achieving emission reduction targets under the recently concluded U.N. global climate agreement. This study uses the principal-agent model to examine a peat land retirement program to reduce agricultural emissions in Norway. The focus is on the role of the government’s private information in program design. Two cases are examined. First, optimal contracts are derived when farmers have private information about the costs of implementing peat land retirement, but the government reveals its private information on the resulting benefits through differentiated contracts. This corresponds to the standard targeting strategy with one-sided information asymmetry. In the second case, an informed principal model developed by Maskin and Tirole (1990) is employed to address bilateral information asymmetry. Using the informed principal model, the government offers the same menu of contracts to farmers in order to conceal its private information. Empirical results show that the government can achieve a higher payoff by using a pooling offer.