Jean-Marc Bourgeon

An incentive approach to land set-aside programs

Abstract 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.

Optimal Area-Yield Crop Insurance Reconsidered

The implementability of area-yield insurance contracts in the presence of symmetric and asymmetric information about the farmers “beta” linking his yield to the risk-pools yield is examined. In the presence of fixed costs and symmetric information Mahuls result that optimality requires setting the slope of the indemnity schedule equal to each farmers beta is confirmed. When there is asymmetric information between the insurer and the farmer, however, this full-insurance contract is vulnerable to adverse selection, and therefore may not be implementable for general cost structures. The optimal area-yield insurance contract under asymmetric information is characterized. Copyright 2003, Oxford University Press.

Point-record driving licence and road safety: An economic approach

Abstract Many countries now issue driving licences where traffic violations are recorded through a point system, even though implementation varies among countries and even within a country. Depriving offenders of their licence is a non-monetary sanction that allows the government to incapacitate dangerous individuals and that also deters most drivers from infringing the law. We investigate the desirable features of point-record licence mechanisms and, in particular, whether drivers should be allowed to redeem points and/or be given a probationary period. We also analyze the complementarity of point-record mechanisms and fines and consider the possibility of an immediate withdrawal of the driving licence for very serious offenses.

Stop-and-Go Agricultural Policies

The optimal design of farm policy and public investment in agriculture in the presence of asymmetric information between the government and farmers is studied. It is shown that a mix of capped deficiency payments and voluntary paid land diversion can implement the optimal policy outcome. Optimal program design requires large farmers to farm all their land, and small farmers may or may not divert acreage. Decoupled policies are never optimal. Copyright 2000, Oxford University Press.

On debt service and renegotiation when debt-holders are more strategic

The contingent claims analysis of firm financing often presents a debt renegotiation game with a passive bank that does not use its ability to force liquidation strategically, contrary to what is observed in practice. We consider two motives that may lead a bank to refuse to renegotiate: maintaining its reputation to preserve its future lending activity and deterring firms from overstating their debt service abatement when they renegotiate. We show that with public information and private debt only, the optimal probability of debt renegotiation is high when the firm’s anticipated liquidation value is high. Under asymmetric information about liquidation value, the high liquidation value firm may be tempted to mimic the low liquidation value firm to reduce its debt service. To deter such mimicking, banks may sometimes refuse to renegotiate with firms having a low liquidation value.

Implementable Ramsey-Boiteux Pricing in Agricultural and Environmental Policy

Agricultural producers frequently face price discrimination that is based either on characteristics of their products, or on the physical manner in which the product is produced. We consider how to set such discriminatory prices optimally and show that for a very broad range of production technologies, the first-best voluntary policy, which involves a modified version of Ramsey-Boiteux pricing, is implementable even in the presence of hidden knowledge by farmers about their types.