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(Self-) Enforcement of Joint Implementation and Clean Development Mechanism Contracts

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  • Josef Janssen

    (Institute for Economy and the Environment at the University of St. Gallen (IWO-HSG), Switzerland and Fondazione Eni Enrico Mattei, Milan, Italy)

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    Abstract

    International climate protection investments (Joint Implementation and Clean Development Mechanism projects) are burdened with problems of contract enforcement, which prevent the realisation of efficiency gains associated with these investments. The paper analyses this problem from the perspective of non-cooperative game theory and proposes two different solutions to the co-operation problem. The first analyses the potential role of national environmental authorities in facilitating credible commitment of the project host operating under its jurisdiction. It is argued that the threat of punishing the project host if he breaches the contract may serve this purpose. The effective level of punishment is derived. The second option involves strategic delegation of contract implementation to a third party operating under the same jurisdiction as the project host. Again, the paper explores the conditions that ensure incentive-compatibility. Both options are based on the idea that the project sponsor may commit himself credibly by becoming a Stackelberg leader.

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    File URL: http://www.feem.it/userfiles/attach/Publication/NDL1999/NDL1999-014.pdf
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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.14.

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    Date of creation: Feb 1999
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    Handle: RePEc:fem:femwpa:1999.14

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    Keywords: Joint Implementation; Clean Development Mechanism; climate protection; international environmental agreements; international investments; contract enforcement; co-operation; incentive compatibility;

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    1. Thomas, J. & Worrall, T., 1990. "Foreign Direct Investment And The Risk Of Expropriation," The Warwick Economics Research Paper Series (TWERPS) 342, University of Warwick, Department of Economics.
    2. Carraro, Carlo & Siniscalco, Domenico, 1993. "Strategies for the international protection of the environment," Journal of Public Economics, Elsevier, vol. 52(3), pages 309-328, October.
    3. North, Douglass C., 1993. "Economic Performance through Time," Nobel Prize in Economics documents 1993-2, Nobel Prize Committee.
    4. Mohr, Ernst & Thomas, Jonathan P., 1998. "Pooling sovereign risks: The case of environmental treaties and international debt," Journal of Development Economics, Elsevier, vol. 55(1), pages 173-190, February.
    5. Staiger, Robert W., 1995. "International rules and institutions for trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 29, pages 1495-1551 Elsevier.
    6. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
    7. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December.
    8. Mohr, Ernst, 1995. "International Environmental Permit Trade and Debt: The Consequences of Country Sovereignty and Cross-Default Policies," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 1-19, February.
    9. Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991. "Observable Contracts: Strategic Delegation and Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-59, August.
    10. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen.
    11. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
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    Cited by:
    1. Fischer, Carolyn, 2004. "Project-Based Mechanisms for Emissions Reductions: Balancing Trade-offs with Baselines," Discussion Papers dp-04-32, Resources For the Future.
    2. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers dp-02-23, Resources For the Future.
    3. Breton, Michele & Zaccour, Georges & Zahaf, Mehdi, 2006. "A game-theoretic formulation of joint implementation of environmental projects," European Journal of Operational Research, Elsevier, vol. 168(1), pages 221-239, January.

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