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This paper analyses an incentive payment-based approach to improving food safety in the supply chain. It develops a principal-agent model of the food supply chain in which the principal offers heterogeneous agents a payment to implement costly additional practices to improve food safety. It is shown that the presence or absence of the moral hazard problem affects the balance of benefits and costs from broadening the scope of the system from just lower cost larger agents to include higher cost smaller agents, thereby affecting the optimal design of the system. In particular, broadening the scope of the system to include smaller agents by increasing the size of the incentive payment can ameliorate the moral hazard problem among larger agents to the extent that this more costly approach is socially optimal.

The principal chemicals used by Western Australia’s horticultural industries for field control and post-harvest disinfestation procedures for Mediterranean fruit fly are soon to be withdrawn from use due to public health concerns. When this occurs, the necessary switch to alternative control methods such as bait sprays and intensive fruit fly trapping will involve additional producer costs. Given these costs, this paper evaluates the option of eradicating Mediterranean fruit fly from the State and discusses possible cost sharing arrangements between government and industry that could be reached for mutual benefit.

In this paper we present the results of a pilot study investigating the public’s view on the pet overpopulation problem. The Choice Experiment aims to understand the UK public’s awareness of the issue, its views and its willingness to participate and pay for a reduction in the rate of animals being “put to sleep”. Our preliminary results indicate that the public are willing to pay to keep healthy stray dogs alive for longer in Local Authority kennels beyond the current seven day statutory period.

The principal chemicals used by Western Australia’s horticultural industries for field control and post-harvest disinfestation procedures for Mediterranean fruit fly are soon to be withdrawn from use due to public health concerns. When this occurs, the necessary switch to alternative control methods such as bait sprays and intensive fruit fly trapping will involve additional producer costs. Given these costs, this paper evaluates the option of eradicating Mediterranean fruit fly from the State and discusses possible cost sharing arrangements between government and industry that could be reached for mutual benefit.

Motivated by recent EC proposals to “strengthen risk management tools” in the CAP in relation to farmers’ increased exposure to market price risk, this paper draws attention to a potential negative consequence of such a change in the CAP – an associated increase in cheating behaviour by farmers in the context of environmental stewardship. A theoretical framework for this policy problem is developed and used not just to illustrate the problem, but also to propose a solution – specifically to combine the introduction of CAP-supported policy changes which reduce farmers’ exposure to market-based risk with changes in environmental stewardship policies which increase the riskiness of cheating and thereby discourage such behaviour.

This paper extends the multi-period agri-environmental contract model of Fraser (2004) so that it contains 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. On this basis it is shown that a farmer will have 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.

International trade of agricultural products not only generates wealth but is also responsible for the introduction of invasive pests beyond their natural range. Comprehensive bioeconomic modelling frameworks are increasingly needed to assist in the resolution of import access disputes. However, frameworks that combine welfare analysis attributable to trade and invasive species spread management are lacking. This study provides a demonstration of how a comprehensive economic framework, which takes into account both the gains from trade and the costs of invasive species outbreaks, can inform decision-makers when making quarantine decisions. We develop a partial equilibrium trade model considering international trade and combine it with a stratified dispersal model for the spread and management of potential outbreaks of an invasive species. An empirical estimation is made of the economic welfare consequences for Australia of allowing quarantine-restricted trade in New Zealand apples to take place. The results suggest the returns to Australian society from importing New Zealand apples are likely to be negative. The price differential between the landed product with SPS measures in place and the autarkic price is insufficient to outweigh the increase in expected damage resulting from increased fire blight risk. As a consequence, this empirical analysis does not support the opening up of this trade.

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 an information asymmetry on farm land heterogeneity, could lead to adverse selection of farmers into the Scheme and therefore reduced cost-effectiveness of the Scheme. This reduced cost-effectiveness would be represented by a systematic overpayment of farmers for the land enrolled into the Scheme, compared to the opportunity cost of production. This paper examines the potential adverse selection problem affecting the higher tier of the Environmental Stewardship, the Higher Level Stewardship, using a principal agent framework combined with farm-level data on participation in the HLS. Empirically, it is found that, at the farm level, HLS participation is negatively related to cereal yields, suggesting the existence of adverse selection in the HLS and farmer overcompensation from entering the scheme.

This paper provides a demonstration of how a comprehensive economic framework, which takes into account both the gains from trade and the costs of invasive species outbreaks, can inform decision-makers when making quarantine decisions. Using the theoretical framework developed in Cook and Fraser (2008) an empirical estimation is made of the economic welfare consequences for Australia of allowing quarantine-restricted trade in New Zealand apples to take place. The results suggest the returns to Australian society from importing New Zealand apples are likely to be negative. The price differential between the landed product with SPS measures in place and the autarkic price is insufficient to outweigh the increase in expected damage resulting from increased fire blight risk. As a consequence, this empirical analysis suggests the net benefits created by opening up this trade are marginal.

The Environmental Stewardship Scheme provides payments to farmers for the provision of environmental services based on agricultural foregone income. This creates a potential incentive compatibility problem which, combined with an information asymmetry on farm land heterogeneity, could lead to adverse selection of farmers into the scheme. However, the Higher Level Scheme (HLS) 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 led to a greater overall contracted area (and thus potential environmental benefit) which has had the effect of reducing the adverse selection problem. 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 into the regulator’s allocation of contracts, thereby also reducing the adverse selection problem.

This paper is motivated by the observation that there is a difference between the time paths of damage valuations for invasions which affect agricultural compared with environmental systems. In particular, unlike agricultural systems, studies have shown that the social valuation of an environmental system is likely to be exponentially positively related to the extent of its deterioration. This paper explores the implications of this difference in determining biosecurity investment priorities. It is concluded that because of this difference an environmental system will often not be prioritised for such protection over an agricultural system even though its ultimate social value exceeds that of the agricultural system.

This paper examines the issue of incentive-compatibility within environmental stewardship schemes where incentive payments to farmers to provide environmental goods and services are based on foregone agricultural income. The particular focus of the paper is on the role of land heterogeneity, whether in terms of agricultural value or environmental value, in leading to divergences between the actual and the socially optimal level of provision of environmental goods and services. It is shown that such goods and services are systematically over or under-provided depending on the characteristics of land heterogeneity both within and between landscape regions. It is therefore concluded that incentive payments should be based on social willingness-to pay for the provision of environmental goods and services.

This paper analyses the role of uncertain demand in determining the government’s choice between an ad valorem and a specific base for its tax to reduce greenhouse gas emissions in the electricity generating sector. Using a model of optimal capacity choice for a pricetaking firm facing demand uncertainty it is shown that an ad valorem tax is more effective in reducing emissions than its equivalent specific tax, although this benefit comes at the cost of lower reliability of electricity supply. A numerical analysis provides a robust finding that the ad valorem tax is expected to generate greater tax revenue, thereby providing support for the choice of this tax base in situations where the extra tax revenue can be used to compensate consumers for reduced reliability of supply.

The dynamic process of market globalisation dictates that biological, technological and institutional changes have the capacity to alter the way in which future biosecurity policies are formulated and endorsed. This paper proposes a method of carrying out biosecurity risk profiling for the United Kingdom by comparing agricultural pest incursions under present circumstances with those under future conditions. Changing economic, environmental, social and political climates are set to alter the circumstances of future pest and disease incursions. With this in mind, this paper suggests a means of identifying responsible biosecurity risk management strategies for an uncertain future.

This paper evaluates concerns over the "abandonment of production" in the context of the recent CAP reform as it applies to the arable sector. The particular focus of the evaluation is on the extent to which the proposed "single farm payment" can be de-coupled from production and yet avoid the abandonment of land on which production is expected to be profitable. An analytical framework is developed which indicates the most important non-policy factors are the profitability of the land, the variability of yield and the grower's degree of risk aversion. The conclusion of a numerical analysis using this framework is that 85% de-coupling is unlikely to lead to abandonment of land in any arable region of the EU, and that 95% de-coupling is also unlikely to lead to abandonment in the majority of arable areas.

This study is motivated by the proposition that the objectives of the AWB Ltd have changed since semi-privatisation of the Australian Wheat Board under the Wheat Marketing Act, 1989. Conceptualising this change of objectives as a shift from revenue maximization to profit maximization, this study examines the impact of such a change on the pricing policies of a multi-market price-setting firm. More specifically, this paper investigates, using two hypothetical objective functions, a risk averse AWB’s price-setting behaviour in an “overseas” and a “domestic” market in response to recent wheat industry developments. In the analysis these developments manifest themselves as differing price elasticities, differing transport costs and uncertain demand functions, and their implications particularly for the prices paid by domestic consumers are explored.

This paper investigates the role of targeting in the context of agri-environmental schemes involving monitoring and penalties and well suited to a geographically-based distinction between participants. By separating participants into a target and a non-target group the aim of targeting is to reduce the moral hazard problem. The paper analyses three approaches to targeting and the focus is on reducing the extent of cheating by participants in the non-target group. By complementing the adoption of targeting with appropriate adjustments to the monitoring/penalty parameters it is shown how such an approach can exploit the risk aversion of participants to completely eliminate cheating by those participants in the non-target group.

Australia’s membership of the World Trade Organisation has generated a need for analytical techniques demonstrating that the behaviour of its internal markets and regulatory authorities for food and food-related products conform with the provisions of the Agreement on Sanitary and Phytosanitary Measures (SPS Agreement). However, since quarantine has long been considered a scientific issue, it is as yet unclear what role economic models have to play in this process. This article shows how consumer welfare effects can be integrated with the traditional producer welfare effects in quantitative analytical models using the examples of the mango and tomato industries in Western Australia, both of which enjoy quarantine protection from interstate growers.

This paper develops the key finding of Hogan, Ozanne and Colman (2000) that risk aversion among farmers ameliorates the moral hazard problem in relation to agri-environmental policy compliance. It is shown that risk averse farmers who face uncertainty in their production income are more likely to comply with such a policy as a means of risk management. In addition, it is shown that a principal who has control over both the level of monitoring and the size of penalty if detected can reduce non-compliance by adjustments to these instruments which increase the variance of farmers’ income but leave the expected penalty unchanged. It is concluded that risk management by both principals and agents has the potential to diminish the moral hazard problem, especially given proposed developments in agri-environmental policy in the European Union.

This study is motivated by the suggestion that the objectives of the AWB Ltd have changed since semi-privatisation of the Australian Wheat Board under the Wheat Marketing Act, 1989. Conceptualising this change of objectives as a shift from revenue maximization to profit maximization, this study examines the impact of such a change on the pricing policies of a multi-market price-setting firm. More specifically, this study investigates, for two hypothetical objective functions, a risk averse firm’s price-setting behaviour in an “overseas” and a “domestic” market, given differing costs of supply, uncertain demand functions and differing price elasticities of demand in each market. The aim is to generate empirically testable hypotheses relating to the impact of a change of objectives on pricing behaviour.

This study is motivated by the suggestion that the objectives of the AWB Ltd have changed since semi-privatisation of the Australian Wheat Board under the Wheat Marketing Act, 1989. Conceptualising this change of objectives as a shift from revenue maximization to profit maximization, this study examines the impact of such a change on the pricing policies of a multi-market price-setting firm. More specifically, this study investigates, for two hypothetical objective functions, a risk averse firm’s price-setting behaviour in an “overseas” and a “domestic” market, given differing costs of supply, uncertain demand functions and differing price elasticities of demand in each market. The aim is to generate empirically testable hypotheses relating to the impact of a change of objectives on pricing behaviour.

Un modèle théorique d'un marché de crédit rural en environnement incertain est développé, afin d'évaluer la performance relative de deux politiques d'intervention ayant pour objectif de réduire le rationnement du crédit. Le comportement optimal des deux parties, exploitants et banquiers, est analysé théoriquement. Plusieurs contrats de prêt sont proposés, qui diffèrent selon leurs termes et le type de crédit. Chaque contrat est caractérisé par un taux d'intérêt et un niveau de collatéral optimaux. La segmentation des exploitants entre les contrats est déterminée par leur aversion au risque et le collatéral qu'ils possèdent. Le rationnement du crédit considéré est celui où les termes du contrat découragent les demandeurs potentiels. Les subventions au crédit et les garanties de prêt agissent sur des contraintes d'optimisation des exploitants différentes. Cependant, la performance réelle de l'une ou l'autre intervention publique en termes de demandeurs de crédit additionnels peut être différente selon les caractéristiques de la population, en particulier selon le niveau de réservation d'utilité et la distribution du collatéral possédé. Une application numérique montre toutefois que les petits exploitants sont plus sensibles à une subvention au crédit alors que les grands exploitants répondent plus à une garantie de prêt.

Grâce à un modèle théorique d'un marché de crédit rural en environnement incertain, le rationnement du crédit auquel font face les exploitants agricoles polonais est expliqué, ainsi que les effets possibles sur la structure des exploitations. Des caractéristiques spécifiques à la Pologne, l'insuffisance de fonds de la part des banquiers, le coût d'opportunité de la terre non nul pour les exploitants et les coûts de transaction positifs sur le marché du crédit, limitent l'accès au crédit des petits exploitants polonais pour un achat de terre ou de nouvelle technologie. Ceci peut en partie expliquer la lente restructuration du secteur agricole polonais. Trois politiques publiques de réduction du rationnement du crédit sont examinées en terme de coût-efficacité : subvention au crédit, garantie de prêt et intervention directe pour augmenter l'offre de prêts. Toutefois aucune préférence ne peut être attribuée à l'une ou l'autre intervention, sans étude préalable sur l'origine du rationnement et sur les caractéristiques des exploitants.

As a signatory of the World Trade Organisation Agreement, Australia has a responsibility to ensure that the behaviour of its internal markets for food and food-related products abide by the same rules and regulations as international trade. There is therefore an increasing need to demonstrate the validity of any measure which restricts competition between production centres to ensure against an appeal and/or retaliatory actions by trading counterparts. This paper explores two economic evaluation techniques which can be used to examine the welfare implications of quarantine policies imposed on interstate trade, and discusses practical applications of each with the aid of two case studies. One approach relies on an aggregated, industry-wide perspective, and is shown to be most appropriate when the cost characteristics of an industry’s component growing regions are similar. The other focuses on spatial elements of a domestic industry, which is best used when there are significant cost differences between component producing regions. In addition to examining the accuracy of these techniques in policy analysis, the size characteristics of the industries they can be applied to are also analysed. Using the examples of the mango and tomato industries in Western Australia, both of which enjoy quarantine protection from interstate growers, it is shown that the consumer welfare implications of competition restrictions outweigh producer welfare implications in larger industries, and vice versa.

Of the number of seasonal forecasting systems that have been developed of late, none are of practical benefit to Western Australian farmers. This study aims to improve the methodology for assessing the value of forecasting technology ex ante to its development, using the Merredin agricultural region of Western Australia as an illustration. Results suggest that a seasonal forecasting technology that provides a 30 per cent decrease in seasonal uncertainty increases annual profits by approximately five per cent. The accumulated annual benefit to farmers in the Merredin region (an area with 754 farm holdings over 35, 500 square kilometres of land) is approximately two million dollars. Hence, support is given for the development of seasonal forecasting techniques in Western Australia.

This paper proposes modifications to the existing EU set-aside policy which are designed to alleviate the problem of output slippage associated with heterogeneous land quality by using "incentive-compatible" mechanisms drawn from principal-agent theory. Specifically, it is suggested that there should be differential reference yields based on land quality to discourage the "adverse selection" of lower quality land for set-aside, and that the scope of set-aside monitoring should be expanded to include both the quantity and the quality of land set-aside so as to discourage "moral hazard" problems. The potential of these modifications is illustrated using a numerical analysis, which is also used to evaluate the role of a range of factors which determine the set-aside decision. Finally, an estimate of the "benefits" from reducing slippage required to justify the costs of including these modifications is provided.