Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-23T15:47:50.032Z Has data issue: false hasContentIssue false
  • English
  • Français

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
Get access Rights & Permissions [Opens in a new window]

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

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

America's Clean Water Foundation. Livestock Waste Management Systems: Assessing Risks and Market Mechanisms to Address Failures. Report to the USDA Risk Management Agency. Washington, DC: America's Clean Water Foundation, 2003.Google Scholar
Becker, G.S. “Crime and Punishment: An Economic Approach.” Journal of Political Economy 76(March-April 1968):169–219.CrossRefGoogle Scholar
Centner, T.J., and Mullen, J.D.. “Enforce Existing Animal Feeding Operations Regulations to Reduce Pollutants.” Water Resources Management 16(2002):133–44.CrossRefGoogle Scholar
Freeman, P.K., and Kunreuther, H.C.. Managing Environmental Risk through Insurance. Boston: Kluwer Academic, 1997.CrossRefGoogle Scholar
Freeman, P.K., and Kunreuther, H.C.. “The Role of Insurance and Well-Specified Standards in Dealing with Environmental Risks.” Managerial and Decision Economics 17(1996):517–30.3.0.CO;2-Y>CrossRefGoogle Scholar
Gramig, B.M. “Regulation of Concentrated Animal Feeding Operations: An Application of Economic Theory to Firm Decision Making and Implications for Public Policy.” M.S. thesis. University of Kentucky, 2004.Google Scholar
Gray, W.B. “The Cost of Regulation: OSHA, EPA and the Production Slowdown.” American Economic Review 77(1987):998–1006.Google Scholar
Hellund, E. “The Revealed Preferences of State EPAs: Stringency, Enforcement, and Substitution.” Journal of Environmental Economics and Management 35(1998):242–61.CrossRefGoogle Scholar
Holmstrom, E., and Milgrom, P.. “Multi-Task, Principal-Agent Analyses: Incentive Contracts, Asset Ownership and Job Design.” Journal of Law, Economics, and Organization 7(1991):24–52.CrossRefGoogle Scholar
Hylton, K.N. “Litigation Costs and the Economic Theory of Tort Law.” University of Miami Law Review 46(September 1991):111–48.Google Scholar
Innes, R. “The Economics of Livestock Waste and Its Regulation.” American Journal of Agricultural Economics 82(February 2000):97–117.CrossRefGoogle Scholar
Kilborn, P.T. “Hurricane Reveals Flaws in Farm Law.” New York Times, sec. National, 17 October 1999, p. 33.Google Scholar
Kunreuther, H.C., McNulty, P.J., and Kang, Y.. “Third-Party Inspection as an Alternative to Command and Control Regulation.” Risk Analysis 22(2002)309–18.CrossRefGoogle ScholarPubMed
Martin, S.W., Barnett, B.J., and Coble, K.H.. “Developing and Pricing a Rainfall Contingent Claims Contract.” Paper presented at the annual meeting of the Southern Agricultural Economics Association, Lexington, KY, February 2000.Google Scholar
Naysnerski, W., and Tietenberg, T.. “Private Enforcement of Federal Environmental Laws.” Land Economics 68(February 1992):28–48.CrossRefGoogle Scholar
North Carolina Division of Water Quality Section. Internet site: http://h2o.enr.state.nc.us/wqs/ (Accessed February 9, 2004).Google Scholar
Oljaca, N., Keeler, A.G., and Dorfman, J.. “Penalty Functions for Environmental Violations: Evidence from Water Quality Enforcement.” Journal of Regulatory Economics 14(1998):255–64.CrossRefGoogle Scholar
Polinsky, A.M., and Shavell, S.. “Punitive Damages: An Economic Analysis.” Harvard Law Review 111(February 1998):869–962.CrossRefGoogle Scholar
Skees, J.R., Black, J.R., and Gramig, B.M.. “Considering Market-Based Alternatives to Improve the Management of CAFOs.” Selected Paper for the American Agricultural Economics Association Annual Meeting in Montreal, Canada, July 27-30, 2003.Google Scholar
Skees, J.R., Botts, A., and Zeuli, K.A.. “The Potential of Recall Insurance in Improving Food Safety.” International Food and Agribusiness Management Review 4(2001):99–111.CrossRefGoogle Scholar
Smigel, A. “Crime and Punishment: An Economic Analysis.” M.A. thesis. Columbia University, 1965.Google Scholar
Smothers, R. “Spill Puts a Spotlight On a Powerful Industry.” New York Times, sec. A, 30 June 1995, p. 10.Google Scholar
Stavins, R.N. “Market-Based Environmental Policies.” Public Policies for Environmental Protection, 2nd ed., Portney, Paul R. and Stavins, Robert N., eds. Washington, DC: Resources for the Future Press, 2000.Google Scholar
Terry, S. “Drinking Water Comes to A Boil.” New York Times, 26 September 1993, pp. 42–5.Google Scholar
Trubek, D.M., Sarat, A., Felstiner, W.L.F., Kritzer, H.M., and Grossman, J.B.. “The Cost of Ordinary Litigation.” UCLA Law Review 32(Oc-tober 1983):72–124.Google Scholar
United States Department of Agriculture and United States Environmental Protection Agency (USDA and EPA). Unified National Strategy for Animal Feeding Operations. Washington, DC: USDA and EPA, 1999.Google Scholar
United States Environmental Protection Agency. National Water Quality Inventory:2000 Report. EPA-841-R-02-001. Washington, DC: United States Environmental Protection Agency, 2000.Google Scholar
Viscusi, W.K. “Frameworks for Analyzing the Effects of Risk and Environmental Regulations on Productivity.” The American Economic Review 73(1983):793–801.Google Scholar
Viscusi, W.K. “Punitive Damages: The Social Costs of Punitive Damages Against Corporations in Environmental and Safety Torts.” Georgetown Law Journal 87(November 1998):285–345.Google Scholar
Vukina, T. “The Relationship between Contracting and Livestock Waste Pollution.” Review of Agricultural Economics 25(2003):66–88.CrossRefGoogle Scholar