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Utilizing Contingent Claims to Improve the Management of CAFOs

Published online by Cambridge University Press:  28 April 2015

Ben M. Gramig ,
Jerry R. Skees  and
J. Roy Black
Ben M. Gramig
Affiliation:
Public Policy and Risk, Department of Agricultural Economics, University of Kentucky, Lexington, KY
Jerry R. Skees
Affiliation:
Public Policy and Risk, Department of Agricultural Economics, University of Kentucky, Lexington, KY
J. Roy Black
Affiliation:
Department of Agricultural Economics, Michigan State University, East Lansing, MI
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Abstract

We propose a market-based approach to reducing the environmental risk posed by concentrated animal feeding operations (CAFOs). The dual problems of hidden information and hidden action faced by policymakers are considered alongside the competing incentives faced by the CAFO manager in a multiple principal-agent setting. A new approach that uses insurance-like contracts is introduced by use of the specific example of a swine operation with a lagoon-based manure management system. Index-based contingent claims contracts in tandem with third-party auditing and waste hauling options are introduced as a complement to regulatory frameworks designed to reduce negative externalities from production.

Keywords

animal feeding operationsasymmetric informationenvironmental riskinsurancepublic policyregulationD82G22L51Q18Q25Q28
Type
Invited Paper Sessions
Information
Journal of Agricultural and Applied Economics , Volume 36 , Issue 2 , August 2004 , pp. 297 - 312
Copyright
Copyright © Southern Agricultural Economics Association 2004

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