02-WP 304 (Revised)
We use a mechanism design framework to analyze the optimal design of green payment policies with the dual goals of conservation and income support for small farms. Each farm is characterized by two dimensions of attributes: farm size and conservation efficiency. Policymakers may not be able to use the attributes as an explicit criterion for payments. We characterize optimal policy when conservation efficiency is unobservable to policymakers, and when farm size is also unobservable. An income support goal is shown to reduce the conservation distortion caused by asymmetric information. The cost of optimal green payment mechanisms is shown to depend crucially on whether large or small farms have greater conservation efficiency.
This working paper was published as Feng, Hongli, "Green payments and dual policy goals," Journal of Environmental Economics and Management 54 (2007): 323–335, doi:10.1016/j.jeem.2007.03.003.
Feng, Hongli, "Green Payments and Dual Policy Goals" (2007). CARD Working Papers. 476.
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