Combining linear programming and principal–agent models: An example from environmental regulation in agriculture

Combining linear programming and principal–agent models: An example from environmental... The paper develops a methodology whereby a Principal–Agent model is combined with Linear Programming in order to deal with the design of environmental regulation in agriculture. Linear Programming is intended here mainly as a tool to estimate an agent's cost/profit function for the purpose of the Principal–Agent model. Two variants of the methodology are considered. First, agents' profit functions are estimated through the interpolation of the results of the parametrisation of the Linear Programming model. In the second option, relevant corner points of the discontinuous profit function generated by the parametrisation of the Linear Programming models are identified. These relevant corner points are then fed into a discrete-action Principal–Agent model. An exploratory application is provided, using a case study related to the purchase of environmental services from agriculture. The results show that Linear Programming may represent a useful way to estimate cost/profit functions to feed Principal–Agent models as long as it allows to incorporate more information from the point of view of how decision making is carried out, particularly when the underlying agent's cost/profit function is generated by a bundle of different production activities. However, the choice of the specific procedure should be cautiously evaluated in order to fit the actual properties of the underlying production process. Also, particular attention should be placed on the manner in which constraints and technical coefficients affect the result of the downstream model. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Environmental Modelling & Software Elsevier

Combining linear programming and principal–agent models: An example from environmental regulation in agriculture

Loading next page...
 
/lp/elsevier/combining-linear-programming-and-principal-agent-models-an-example-004bNoq9ZL
Publisher site
See Article on Publisher Site

Abstract

The paper develops a methodology whereby a Principal–Agent model is combined with Linear Programming in order to deal with the design of environmental regulation in agriculture. Linear Programming is intended here mainly as a tool to estimate an agent's cost/profit function for the purpose of the Principal–Agent model. Two variants of the methodology are considered. First, agents' profit functions are estimated through the interpolation of the results of the parametrisation of the Linear Programming model. In the second option, relevant corner points of the discontinuous profit function generated by the parametrisation of the Linear Programming models are identified. These relevant corner points are then fed into a discrete-action Principal–Agent model. An exploratory application is provided, using a case study related to the purchase of environmental services from agriculture. The results show that Linear Programming may represent a useful way to estimate cost/profit functions to feed Principal–Agent models as long as it allows to incorporate more information from the point of view of how decision making is carried out, particularly when the underlying agent's cost/profit function is generated by a bundle of different production activities. However, the choice of the specific procedure should be cautiously evaluated in order to fit the actual properties of the underlying production process. Also, particular attention should be placed on the manner in which constraints and technical coefficients affect the result of the downstream model.

Journal

Environmental Modelling & SoftwareElsevier

Published: Jun 1, 2009

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off