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This paper examines the issue of compensation payments for farmers affected by an animal disease outbreak. Recent literature has questioned the scope for the widely used “single mechanism” of compensation payments to incentivise farmers both to undertake costly on-farm biosecurity and to comply with disease reporting requirements. This paper develops a simple theoretical model of the farmer’s decision environment in this situation and uses a numerical analysis to illustrate both the potential for a range of levels of compensation payments to achieve this dual incentivising, and how this range is affected by changes in the parameter values of the farmer’s decision environment. The findings of the paper are used to suggest a range of policy implications in relation to compensation payments in the UK. [ABSTRACT FROM AUTHOR]

This Address examines the moral hazard problem in agri-environmental policy. It begins with a theoretical analysis of moral hazard in this context, including the identification of eight potential causes of cheating behaviour among farmers. But is cheating behaviour among farmers actually a problem for agri-environmental policy? And if it is, which are the statistically significant causes of concern? The answer seems to be: 'we don't know' as there are currently no empirical analyses of the moral hazard problem and its causes in agri-environmental policy. On this basis I analyse a set of policy solutions - to a problem for which we have no evidence of its causes or extent! [ABSTRACT FROM AUTHOR]

The Environmental Stewardship Scheme (ESS) provides payments to farmers for the provision of environmental services based on forgone agricultural income. Consequently, farmers with a relatively low opportunity cost of agricultural land will be particularly attracted to apply for entry into the ESS within a given payment region. This article tests whether there exists a significant relationship between Higher Level Stewardship (HLS) Scheme entry and agricultural yields. Empirically, HLS participation is found to be negatively related to cereal yields at the farm level. This could be associated with 'auspicious selection' of land into the Scheme, with greater 'value for money' provided by the higher entry of land with lower agricultural forgone income but higher environmental benefit within the region. [ABSTRACT FROM AUTHOR]

The Environmental Stewardship Scheme provides payments to farmers for the provision of environmental services based on foregone agricultural income. This creates a potential incentive compatibility problem which, combined with information asymmetry about farm land potential, can lead to adverse selection of land into the Scheme and therefore a less cost-effective provision of environmental goods and services. However, the Higher Level Stewardship (HLS) Scheme design includes some features that potentially reduce adverse selection. This paper studies the adverse selection problem of the HLS using a principal-agent framework at the regional level. It is found that, at the regional level, the enrolment of more land from lower payment regions for a given budget constraint has reduced the adverse selection problem through contracting a greater overall area and thus higher overall environmental benefit. In addition, for landscape regions with the same payment rate (i.e. of the same agricultural value), differential weighting of the public demand for environmental goods and services provided by agriculture (measured by weighting an environmental benefit function by the distance to main cities) appears to be reflected in the regulator’s allocation of contracts, thereby also reducing the adverse selection problem. [ABSTRACT FROM AUTHOR]

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Motivated by the policy trend of exposing European Union farmers to more market risk by reducing price support, this paper evaluates the compensation required by EU cereal growers to accept the complete removal of price support. Additional considerations are whether this policy change also includes the removal of set-aside, or features only a partial removal of price support. A model is developed which captures the main on- and off-farm factors influencing grower perceptions of the impact of this policy change. This model is subjected to a numerical analysis which shows that divergent assessments of the expected profitability of releasing to production land previously set-aside mean growers are unlikely to agree whether compensation is even required. It is concluded that the retention of set-aside for environmental purposes is likely to mean growers are more united in their perception of the need for, and amount of, compensation to accept the removal of price support. [ABSTRACT FROM AUTHOR]