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Contract Design to Sequester Carbon in Agricultural Soils

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Abstract

According to several studies, agricultural carbon sequestration could be a relatively low cost opportunity to mitigate greenhouse gas (GHG) concentration and a promising means that could be institutionalised. However the potential for additional carbon quantities in agricultural soils is critical and comes from the agricultural firms behaviour with regards to land heterogeneity. In this paper, our aim is to set incentive mechanisms to enhance carbon sequestration by agricultural firms. A policymaker has to arrange incentives as agricultural firms have private information and do not spontaneously switch to the required practices. Moreover, a novelty in our paper is to show that the potential for additional carbon sequestration is similar to an exhaustible resource. As a result, we construct an intertemporal principal-agent model with adverse selection. Our contribution is to specify contracts in order to induce truthful revelation by the firms regarding their intrinsic characteristics towards carbon sequestration, while analytically characterizing the optimal path to sequester carbon as an exhaustible resource.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2010/10060.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 10060.

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Length: 36 pages
Date of creation: Mar 2010
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Handle: RePEc:mse:cesdoc:10060

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Keywords: Adverse selection; agriculture; carbon sequestration; incentives; land-use.;

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  1. de Cara, Stephane & Rozakis, Stelios, 2004. "Carbon sequestration through the planting of multi-annual energy crops: A dynamic and spatial assessment," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 5(1), January.
  2. S De Cara & P-A Jayet, 2000. "Emissions of greenhouse gases from agriculture: the heterogeneity of abatement costs in France," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 27(3), pages 281-303, September.
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Cited by:
  1. Mireille Chiroleu-Assouline & Jean-Christophe Poudou & Sébastien Roussel, 2012. "North / South Contractual Design through the REDD+ Scheme," Working Papers 2012.89, Fondazione Eni Enrico Mattei.

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