Statistical Modelling of Incentive Design Under Limited Information - The Case of Public Access to Farmland

Abstract

Listen

Translate article

This paper explores the use of statistical modelling to aid efficient policy design for the provision of environmental goods on farms under conditions of adverse selection. The specific case of incentive-based schemes to enhance the supply of public access to farmland is used as an example. A range of site willingness-to-pay (WTP) distributions are used to explore the benefits derived from policies designed under different levels of information. Where no individual farm information is available, low payment rates are optimal, but efficient market creation may not be possible. Increasing the information set allows discretion in pricing and entry: optimal payment rates and net benefits are higher and the pay-off from procuring improved information can be substantial. Such benefits are reduced where there is a welfare cost associated with increased government expenditure. Optimal policies are sensitive to the skewness of the WTP distributions. Mechanisms for increasing the information set available to policy makers are discussed.