OPTIMAL DESIGN OF A VOLUNTARY GREEN PAYMENT PROGRAM UNDER ASYMMETRIC INFORMATION
By: Wu, JunJie; Babcock, Bruce A.
Wu, JunJie; Babcock, Bruce A., OPTIMAL DESIGN OF A VOLUNTARY GREEN PAYMENT PROGRAM UNDER ASYMMETRIC INFORMATION, Journal of Agricultural and Resource Economics, Volume 20, Issue 2, December 1995, Pages 316-327
Green payment programs, where the government pays farmers directly for environmental benefits, are an alternative to the current method of achieving environmental benefits which restricts farming practices in exchange for deficiency payments. This article presents a voluntary green payment program using the principles of mechanism design under asymmetric information. Information asymmetry arises because the government knows only the distribution of farmers' production situations, rather than farm-specific information. The program is demonstrated with irrigated corn production in the Oklahoma high plains. A green payment program can reduce budget costs and pollution, while increasing the net social value of corn production.