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 Motu Economic and Public Policy Research in its series Working Papers with number 10_04.
Length: 39 pages
Date of creation: Aug 2010
Date of revision:
Voluntary opt-in; adverse selection; deforestation; offsets; emissions trading; REDD;
Other versions of this item:
- van Benthem, Arthur A. & Kerr, Suzi, 2010. "Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers," 2010 Conference, August 26-27, 2010, Nelson, New Zealand 96813, New Zealand Agricultural and Resource Economics Society.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-14 (All new papers)
- NEP-ENE-2010-08-14 (Energy Economics)
- NEP-ENV-2010-08-14 (Environmental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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NBER Working Papers
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- Millard-Ball, Adam, 2013. "The trouble with voluntary emissions trading: Uncertainty and adverse selection in sectoral crediting programs☆☆Special thanks to Suzi Kerr, Lawrence Goulder, Michael Wara, Arthur van Benthem, Lee," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 40-55.
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