Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers
AbstractAs part of international climate change policy, voluntary opt-in programs to reduce emissions in unregulated sectors or countries have spurred considerable discussion. Since any regulator will make errors in predicting baselines, adverse selection will reduce efficiency since participants will self-select into the program. In contrast, pure subsidies lead to full participation but require large financial transfers; this is a particular challenge across countries. A global social planner facing costless transfers would choose such a subsidy to maximize efficiency. However, any actual policy needs to be individually rational for both the buying (industrialized) and selling (developing) country. We present a simple model to analyze this trade-off between adverse selection and infra-marginal transfers. The model leads to the following findings. First, extending the scale of voluntary programs both improves efficiency and reduces transfers. Second, the set of individually rational and Pareto efficient policies typically features a combination of credit discounting and stringent assigned baselines which reduce efficiency. Third, if the industrialized countries can be persuaded to be more generous, the feasible policy set can come close to the globally efficient policy to avoid deforestation.
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Bibliographic InfoPaper provided by New Zealand Agricultural and Resource Economics Society in its series 2010 Conference, August 26-27, 2010, Nelson, New Zealand with number 96813.
Date of creation: Aug 2010
Date of revision:
Voluntary opt-in; adverse selection; deforestation; offsets; emissions trading; REDD; Agricultural and Food Policy; Community/Rural/Urban Development; Environmental Economics and Policy; Land Economics/Use; Q54; Q56;
Other versions of this item:
- Arthur van Benthem & Suzi Kerr, 2010. "Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers," Working Papers 10_04, Motu Economic and Public Policy Research.
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
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