Optimal Surveillance and Indemnity Policy for Eradicating Exotic Livestock Diseases

ABSTRACT We present a theoretical model that identifies the optimal resource allocation between surveillance and intervention for eradicating exotic livestock diseases. We apply a game theory approach to analyse the strategic interaction between the Animal Health Authority (AHA) and the stockbreeders. The model elucidates how the breeders' pay‐offs depend upon the AHA's choices and vice versa. We first model the stockbreeder reporting decision (passive surveillance) under uncertainty. Then, we analyse how the AHA should efficiently allocate resources between active surveillance (inspections) and intervention, and determine how this trade‐off is influenced by various economic factors, such as the operation size and breeders' risk attitudes. By explicitly considering the relationship between passive and active surveillance, the model reconciles the literature investigating the nexus between compensation payments and reporting with the literature on the relationship between surveillance and intervention. We use the case study of a parasite of social bee colonies, the Small Hive Beetle, in Italy, which presents no moral hazard concerns, and hence limits the complexity of the analysis. However, the model can be adapted to other types of exotic diseases and livestock. The model does not provide precise quantitative prescriptions of the optimal values to be assigned to indemnities and probability of monitoring. Rather, it contributes to the understanding of the economic factors that influence optimal surveillance and intervention strategies.