Optimal Biosecurity Policy with Heterogeneous Farmers

Infectious animal diseases raise serious challenges for both public health and the livestock sector. We develop an original principalÐmultiple agent model for preventing these diseases that explicitly considers the heterogeneity of risk-averse farmers in addition to production externalities and ex ante informational asymmetries. Our results confirm that failing to consider farmersÕ heterogeneity generates Pareto-inefficient solutions. When using individual-based instruments, the government should cope with heterogeneity by increasing guaranteed payments and reducing average payments. However, when population-based instruments are the only available policy tools, increasing average payments is better for reducing moral hazard issues.