Behavioral Incentives, Equilibrium Endemic Disease, and Health Management Policy for Farmed Animals

The article develops a dynamic capital valuation model in which farms can act with farm-varying cost to increase the probability of avoiding an infectious endemic animal disease. Multiple endemic disease equilibria can exist, and the one with the largest set of action takers is socially optimal. Costly capital markets are shown to be a factor in determining the extent of disease. Frictions, such as dealing with a veterinary public health bureaucracy, can enhance social welfare by encouraging precautionary biosecurity actions. Technical innovations can reduce social welfare, and a disease indemnification scheme is also studied. Suggestions for empirical implementation are provided. Copyright 2007, Oxford University Press.