An incentive approach to land set-aside programs

This paper is devoted to a theoretical analysis of policies aiming at reducing the supply of agricultural produce through contractual or mandatory land set-aside. The model relies on contract theory under adverse selection: it allows us to evaluate the impact of asymmetric information about yields o...

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Bibliographic Details
Published in:European economic review 1995-10, Vol.39 (8), p.1487-1509
Main Authors: Bourgeon, Jean-Marc, Jayet, Pierre-Alain, Picard, Pierre
Format: Article
Language:English
Subjects:
Adverse selection
Agricultural policy
Asymmetric information
Contract law
Contract theory
Economic models
Economic theory
European Union
Land policy
Price support
Set-aside programs
Studies
Subsidies
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Summary:This paper is devoted to a theoretical analysis of policies aiming at reducing the supply of agricultural produce through contractual or mandatory land set-aside. The model relies on contract theory under adverse selection: it allows us to evaluate the impact of asymmetric information about yields on the optimal price support policy and on land set-aside. Specifically, we analyze an optimal contractual policy consisting of a subsidy system which makes transfers dependent on the set-aside area and a policy of mandatory land set-aside applying uniformly to all farms and ignoring incentive constraints. Numerical simulations allow us to assess and compare the respective effects of these policies.
ISSN:0014-2921
1873-572X
DOI:10.1016/0014-2921(95)00016-7