Time inconsistent resource conservation contracts
Are commonly observed resource conservation contracts efficient? In this paper we construct a model that embodies common characteristics of resource contracts. Using this model, we analyze a large class of real-world resource contracts and find them to be economically inefficient. This inefficiency stems from a time inconsistency inherent in these contracts. There are two possible ways to overcome this time inconsistency. The first is to employ a sufficiently large penalty for early termination of the contract. The second and possibly easier method is to offer an upward sloping conservation payment schedule so far overlooked by resource contracts. Under this payment schedule, the agent's ex-ante and ex-post contract choices coincide, social externalities are fully internalized, and the contractual outcome is economically efficient even in the absence of a penalty for early termination.
(This abstract was borrowed from another version of this item.)
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.:
- Kenneth M. Chomitz & Franck Lecocq, 2004.
"Temporary sequestration credits: an instrument for carbon bears,"
Taylor & Francis Journals, vol. 4(1), pages 65-74, March.
- Kenneth M. Chomitz & Franck Lecocq, 2003. "Temporary sequestration credits : an instrument for carbon bears," Policy Research Working Paper Series 3181, The World Bank.
- Feng, Hongli & Zhao, Jinhua & Kling, Catherine L., 2002. "Time Path and Implementation of Carbon Sequestration (The)," Staff General Research Papers Archive 5068, Iowa State University, Department of Economics.
- Lisandro Abrego & Carlo Perroni, 2002. "Investment subsidies and Time-Consistent Environmental Policy," Oxford Economic Papers, Oxford University Press, vol. 54(4), pages 617-635, October.
- Lisandro Abrego & Carlo Perroni, "undated". "Investment Subsidies and Time-Consistent Environmental Policy," EPRU Working Paper Series 99-19, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Abrego, Lisandro & Perroni, Carlo, 1999. "Investment Subsidies and Time-Consistent Environmental Policy," The Warwick Economics Research Paper Series (TWERPS) 533, University of Warwick, Department of Economics.
- Horowitz, John K., 1996. "Environmental policy under a non-market discount rate," Ecological Economics, Elsevier, vol. 16(1), pages 73-78, January.
- 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.
- Stefano Pagiola & Paola Agostini & José Gobbi & Cees de Haan & Muhammad Ibrahim, 2004. "Paying for Biodiversity Conservation Services in Agricultural Landscapes," Others 0405005, EconWPA.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June. Full references (including those not matched with items on IDEAS)