Compensation payments and animal disease: Incentivising farmers both to undertake costly on-farm biosecurity and to comply with disease reporting requirements

Abstract

This paper examines the issue of compensation payments for farmers affected by an animal disease outbreak. Recent literature has questioned the scope for the widely used “single mechanism” of compensation payments to incentivise farmers both to undertake costly on-farm biosecurity and to comply with disease reporting requirements. This paper develops a simple theoretical model of the farmer’s decision environment in this situation and uses a numerical analysis to illustrate both the potential for a range of levels of compensation payments to achieve this dual incentivising, and how this range is affected by changes in the parameter values of the farmer’s decision environment. The findings of the paper are used to suggest a range of policy implications in relation to compensation payments in the UK.