Grants for advisory services in the private Danish forestry sector – A principal–agent approach

The Danish government gives a grant to consultant companies offering advisory services to private forest owners. The Danish Forest and Nature Agency and the consultant companies constitute a principal–agent system. The forest owner is not directly part of this relationship, but he has a main impact on it. The consultant companies have private information regarding their costs and assuming that these vary between companies, the government can benefit from introducing differentiated contracts. The informational rent will be determined by the forest owners. One company dominates the market and introducing differentiated contracts may exclude other companies. Increased short run costs may be allowed for in order to attract new consultant companies and increase the competition.