Private environmental incentive contract and a weather signal

• Published in: Environmental Economics 1 (2), 62-66. (2011)
• Main Authors: Loisel, Patrice, Elyakime, Bernard
• Format: Publication
• Language: English
• Published: 2011
• Subjects: climat; ECOSYSTEM SERVICE; incitation; INCITEMENT; MINIMUM PAYMENT; REGULATION; RISK; risque; régulation; service; SERVICE LIE AUX ECOSYSTEMES; VERSEMENT MINIMUM; WEATHER

The authors of the paper are interested in an environmental incentive payment mode for risk-averse contracting farmers. The incitement joins the environmental output produced by the farmer to his effort through an environmental contract reported to be motivating. However, we suppose an environmental output depending on a weather signal and we consider the effect of a weather variable on the incentive contract. The first and usual incentive contract studied takes into account the average effect of a weather indicator on the farmer's environmental output. The paper studies a second incentive contract taking into account the instantaneous effect of a weather indicator on the fanner's environmental output. Then in complement of the reservation farmer's utility, authors consider a minimum incentive payment given to the farmer through a constraint of a minimum payment for every point of farmer's output. It is possible to increase this minimum payment in the second type contract (compared to the first one) without reducing the expected utility of the principal and the expected utility of the fanner, by increasing the level of the farmer's environmental action. The use of such minimum farmer's payment and the increase of this minimum payment could be very conclusive to bind a farmer by an environmental contract