Abstract

This article focuses on the incentive compatibility of existing compensation schemes for the indemnification of costs and losses of animal disease outbreaks in the member states of the EU. It is shown that efficient animal disease risk management basically requires compensation of costs and losses. The financing and indemnification principles of the compensation systems in the European Union however provide adverse incentives and result in inefficient livestock production structures and insufficient loss prevention activities of livestock holders. Guidelines are provided for the institutional arrangement and the financing and indemnification policy of compensation systems that allow for efficient animal disease risk management.

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