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The Optimal Length of an Agricultural Carbon Contract

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Author Info
Sumeet Gulati
James Vercammen

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Abstract

In this paper we present the economic determinants of the optimal length of a carbon offset contract. We find that because of a declining capacity of the soil to sequester carbon, the optimal length of the carbon contract is finite (the marginal benefit of remaining in the contract is declining over time, whereas marginal opportunity cost is rising). We also explore the effect of varying key parameter values on the optimal length in the contract. If the contract requires the farmer to sequester at a higher rate, the farmer chooses the contract for a shorter length of time, and this may decrease rather than increase social welfare. If society places a higher value on carbon accumulation, the contract is chosen for a longer length of time. Finally, if both the farmer and society have a higher discount rate, the model provides a somewhat surprising result. The overall time in the contract, and benefits from carbon accumulation are higher when the common discount rate is higher.

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File URL: http://web.uvic.ca/~kooten/REPA/WorkingPaper2005-17.pdf
File Format: application/pdf
File Function: Final version, 2005
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Publisher Info
Paper provided by University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group in its series Working Papers with number 2005-17.

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Length: 28 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:rep:wpaper:2005-17

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Related research
Keywords: carbon offset contracts; greenhouse gas policy; soil carbon;

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Find related papers by JEL classification:
Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

References listed on IDEAS
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.:

  1. GR Pautsch & LA Kurkalova & BA Babcock & CL Kling, 2001. "The Efficiency Of Sequestering Carbon In Agricultural Soils," Contemporary Economic Policy, Western Economic Association International, vol. 19(2), pages 123-134, 04. [Downloadable!] (restricted)
  2. Antle, John & Capalbo, Susan & Mooney, Sian & Elliott, Edward & Paustian, Keith, 2003. "Spatial heterogeneity, contract design, and the efficiency of carbon sequestration policies for agriculture," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 231-250, September. [Downloadable!] (restricted)
  3. Heng-Chi Lee & Bruce A. McCarl, 2004. "The Dynamic Competitiveness of U.S. Agricultural and Forest Carbon Sequestration," UWO Department of Economics Working Papers 20044, University of Western Ontario, Department of Economics, revised Nov 2003. [Downloadable!]
    Other versions:
  4. Kenneth M. Chomitz & Franck Lecocq, 2003. "Temporary sequestration credits : an instrument for carbon bears," Policy Research Working Paper Series 3181, The World Bank. [Downloadable!]
  5. Lecocq, Franck & Chomitz, Kenneth, 2001. "Optimal use of carbon sequestration in a global climate change strategy : is there a wooden bridge to a clean energy future ?," Policy Research Working Paper Series 2635, The World Bank. [Downloadable!]
  6. Pautsch, Gregory R. & Kurkalova, Lyubov A. & Babcock, Bruce A. & Kling, Catherine L., 2000. "Efficiency of Sequestering Carbon in Agricultural Soils (The)," Staff General Research Papers 1870, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
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Cited by:
(explanations, 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.)

  1. Chen, Xiaoxuan & Ando, Amy Whritenour, 2006. "Optimal Contract Length for Voluntary Land Conservation Programs," 2006 Annual meeting, July 23-26, Long Beach, CA 21259, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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