Overview: The course is intended to give the student a grounding in the application of contract theory and mechanism design to the design and formulation of policies in agriculture, natural resources, development, and environmental economics. The approach will be to cover the relevant theoretical background and then to consider applications.  Each student will be expected to participate actively by preparing and presenting (in class) critical syntheses of selected articles on the reading list to be assigned by the instructor. Students are encouraged to follow Thomson’s, Guide for the Young Economist, in preparing and presenting the syntheses as well as their papers.  Final student evaluation will be on the basis of these presentations and a paper prepared for this course.

Office: 3212 Symons

Office Hours: One hour immediately following class meeting

Course Project: Each student will prepare a scholarly paper for the class on a topic of his or her choice. (The ultimate goal is for the paper to be publishable in a professional journal. Only original research topics are permitted. You are specifically prohibited from turning in a paper that was prepared prior to the beginning of the current semester.)  The paper is to use some of the tools developed in this class. The paper length is up to the student.

Grading: Based on the paper prepared for the course project and class presentations of selected articles on the reading list (equal weights). The term paper is due at the time corresponding to the start of the scheduled final exam (in the UM Course Schedule) for this class.

Academic and Professional Integrity: The student is expected to adhere to all University of Maryland guidelines concerning academic integrity.

READING LIST

TEXTS

Salanie, B., The Economics of Contracts, Cambridge: MIT Press, 1997. (required)

Chambers, R. G. and J. Quiggin. Uncertainty, Production, Choice, and Agency : The State-Contingent Approach. Cambridge University Press, 2000. (recommended)

Laffont, J.-J.  Fundamentals of Public Economics, MIT Press, 1988. (recommended)

SURVEY ARTICLE

Chambers, R.G., 2002. Information, Incentives and the Design of Agricultural Policies. Handbook of Agricultural Economics, B.L Gardner and G. C. Rausser (eds). North-Holland/Elseveir, New York.

Mechanism Design and Regulation (Hidden Knowledge)

Baron, D., and R. Myerson, 1982, Regulating a Monopolist with Unknown Costs, Econometrica, 50, 911-930.

Laffont, J.-J., and J. Tirole, 1986, Using cost observations to regulate firms, Journal of Political Economy, 94, 614-641.

Lewis, Ware and Feenstra, 1989, Eliminating Price Supports: A Political Economy Perspective, Journal of Public Economics, 140, 159-185.

Chambers, R.G., 1992, On the Design of Agricultural Policy Mechanisms, American Journal of Agricultural Economics, 74, 646-54.

Smith, R.B.W. 1995. The Conservation Reserve Program as a Least-Cost Land Retirement Mechanism. American Journal of Agricultural Economics 77 : 93-105.

Bourgeon, J.-M. and R.G. Chambers. 2000, Stop and Go Agricultural Policies. American Journal of Agricultural Economics, 82, 1-13.

Hueth, B.M.  The Goals of US Agricultural Policy : A Mechanism Design Approach. American Journal of Agricultural Economics 82 : 14-24

Innes, R.  Stop-and-Go Agricultural Policies with a Land Market. American Journal of Agricultural Economics 85, 198 - 215.

Smith, R.B.W and J. Shogren. 2002. Voluntary Incentive Design for Endangered Species Protection. Journal of Environmental Economics and Management 43 : 169-87.

Bourgeon, J.-M. and R.G. Chambers. Optimal Area-Yield Insurance Reconsidered. American Journal of Agricultural Economics (forthcoming).

________. 2007. Implementable Ramsey-Boiteux Pricing in Agricultural and Environmental Policy. Working paper, University of Maryland.

Input versus output incentives

Maskin, E., and J. Riley, 1985, Input Versus Output Incentive Schemes, Journal of Public Economics, 28, 1-23.

Khalil, F. and J. Lawarree, 1995, Input versus Output Monitoring: Who is the Residual Claimant?, Journal of Economic Theory, 66, 139--157.

Bontems, P., and J.M. Bourgeon. 2000, Creating countervailing incentives through the choice of instruments”, Journal of Public Economics  76 : 181-202.

Countervailing Incentives

Lewis, T. R. and D.E.M. Sappington, 1989, Countervailing Incentives in Agency Problems, Journal of Economic Theory, 49, 294-313.

________. 1989, Inflexible Rules in Incentive Problems. American Economic Review, 79, 69-84.

Maggi, G. and A. Rodriguez-Clare, 1995, On Countervailing Incentives, Journal of Economic Theory, 66, 238-263.

Adverse selection and externalities

Spulber, D., 1988, Optimal environmental regulation under asymmetric information, Journal of Public Economics, 35, 163-181.

Lewis, T. R., 1996, Protecting the environment when costs and benefits are privately known, Rand Journal of Economics, 27, 819-847.

Hidden Action, Moral Hazard

Holstrom, B., 1979, Moral hazard and observability, Bell Journal of Economics, 10, 74-91.

Holstrom, B., 1982, Moral hazard in Teams, Bell Journal of Economics, 13, 324-340.

McAfee, P., and J. McMillan, 1991, Optimal contracts for Teams, International Economic Review, 32, 561-577.

Segerson, K., 1988, Uncertainty and Incentives for Nonpoint Pollution Control, Journal of Environmental Economics and Management, 15, 87-98.

Xepapadeas, A., 1995, Observability and choice of instrument mix in the control of externalities, Journal of Public Economics, 56,485-498.

Chambers, R. and J. Quiggin, 1996, Non-Point-Source Pollution Regulation as a Multi-Task Principal-Agent Problem, Journal of Public Economics; 59, 95-116.

________. Chapters 9, 10.

_________. 2001, Incentives and Standards in Agency Contracts. Working Paper. R.G. Chambers and. Quiggin, J.

Tsoulouhas, T. and Vukina, T. 2001. Regulating Broiler Contracts : Tournaments vs. Fixed Standards. American Journal of Agricultural Economics 83 : 1062-73.