On the optimal design of income support and agri-environmental regulation

In this paper, we develop a model of regulation for a set of heterogenous farmers whose production yields to environmental externalities. The goal of the regulator is first to offer some income support depending on collective preferences towards income redistribution and second to internalize externalities. The optimal policy is constrained by the information available. We first consider the second best where the regulator is able to observe all individuals decisions in terms of inputs and individual profit, but not the individual farming labor supply. We characterized the generalized transfer in function of the desire to redistribute and the underlying characteristics of the production process. In a second step, we assume that the regulator has only information on aggregate consumption of inputs and hence can only tax/subsidy linearly inputs and output. However, because the accounting profit remains observable, a non linear transfer of profit is still part of the optimal policy. In the last part of the paper, we endogenize the market price of land and examine how the optimal policy should be modified.asymmetric information, agricultural policy, agri-environmental policy, income support, Agricultural and Food Policy, Environmental Economics and Policy, Q18, Q12, Q58,

Advertising and Price Signaling of Quality in a Duopoly with Endogenous Locations

We analyze a two-sender quality-signaling game in a duopoly model where goods are horizontally and vertically dierentiated. While locations are chosen under quality uncertainty, firms choose prices and advertising expenditures being privately informed about their types. We show that pure price separation is impossible, and that dissipative advertising is necessary to ensure existence of separating equilibria. Equilibrium refinements discard all pooling equilibria and select a unique separating equilibrium. When vertical differentiation is not too high, horizontal differentiation is maximum, the high-quality firm advertises, and both firms adopt prices that are distorted upwards (compared to the symmetric-information benchmark). When vertical differentiation is high, firms choose identical locations and ex post, only the high-quality firm obtains positive profits. Incomplete information and the subsequent signaling activity are shown to increase the set of parameters values for which maximum horizontal differentiation occurs.advertising; location choice; quality; incomplete information; multi-sender signaling game

Public regulation of R&D racings

The purpose of the paper is to theoretically examine the welfare implications of public sector involvement in agricultural biotechnology R&D. The model assumes that firms (either a private duopoly consisting of a pair of for-profit firms or a mixed duopoly consisting of one for-profit firm and one public firm) compete in a winner-take-all patent race that is subject to R&D spillovers. Unlike previous research, spillovers are explicitly incorporated into the race, and the size of the prize that accrues to the winner, as well as the size of the ex post social surplus, is contingent on whether or not the public firm participates in the stage two product market. The welfare results concerning the implication of public sector involvement in the R&D race have several unexpected properties because of the interaction of the three sources of market failure (underinvestment due to spillovers, overinvestment due to winner-take-all racing and monopoly pricing in the product market). The main result is that the R&D subsidy or tax, while effective at improving the efficiency of the R&D outcome, is not effective at correcting the monopoly pricing market failure in the product market. The public firm, on the other hand, is able to simultaneously shift the R&D outcome toward first-best and reduce the expected distortion in the product market. The public firm invests particularly aggressively when R&D spillovers are high and the deadweight loss from monopoly pricing in the product market is high. An important problem with public firm participation in the R&D race is that cost smoothing inefficiencies arise because the public firm will either invest at a relatively high level to address the underinvestment externality, or invest at a relatively low level to address the overinvestment externality. Cost smoothing considerations always prevents attainment of first-best when product market externalities are present.Research and Development/Tech Change/Emerging Technologies,

Contracting with Agents Seeking Status

We explore in this paper the consequences of status seeking preferences among agents contracting with a private principal in the context of production. We examine in particular the case of envy and we show that in general envy entails augmented distortions due to asymmetric information in optimal contracts. Furthermore if the principal neglects the preferences of the agents with respect to status, then potentially there is under-participation to the contract. We also show that if the principal is free to choose who can participate to the contract, then under some conditions the principal may prefer to contract with only a subset of potentially "profitable" agents (that is where his utility is strictly positive). We then ask whether contracting with agents seeking status would yield to more incentives to exert unobservable effort. We actually show that the principal has incentives to discourage effort. In the last part of the paper, we consider the case of costly observation of private decisions so that we investigate whether envy encourages non compliance or not.status, adverse selection, contracts, envy, externalities, Production Economics, D6, H0, D86,

PREDATORY ACCOMMODATION IN VERTICAL CONTRACTING WITH EXTERNALITIES

The goal of this paper is to analyze vertical contracts between manufacturers and retailers in a channel including the upstream input market. Using a Nash bargaining framework, we study the contract negotiations between manufacturers and the common retailer, both in a simultaneous and sequential game. The oligopsonistic behavior of manufacturers on the upstream market provides a new explanation for predatory accommodation. With two-parts tariff, we show that joint profit of the industry is not maximised at simultaneous bilateral bargaining equilibria and that below marginal cost pricing in the intermediate goods market arises, when final products are substitutes, and may be welfare improving. When negotiations occurs sequentially, we show, in the two-manufacturers case, that the first manufacturer which enters into negotiations and the retailer may jointly prefer above marginal cost pricing or not, depending on the distribution of bargaining power in the channel. However, the second manufacturer equilibrium wholesale price is set below marginal cost.Agribusiness,

Acceptable Reforms of Agri-Environmental Policies

We consider a model of regulation for nonpoint source water pollution through non linear taxation/subsidization of agricultural production. Farmers are heterogenous along two dimensions, their ability to transform inputs into final production and the available area they possess. Asymmetric information and participation of farmers to the regulation scheme put constraints on the optimal policy that we characterize. We show that a positive relationship between size of land and ability may exacerbate adverse selection effects. We then introduce acceptability constraints and show that the intervention under acceptability amounts to reallocate production towards inefficient farmers who benefit from the reform at the expense of efficient producers. Last, we calibrate the model using datas on a french watershed (Don watershed). Simulations indicate that satisfying a high degree of acceptability does not entail high welfare losses compared to low degree of acceptability.Environmental Economics and Policy,