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Additionality When REDD Contracts Must be Self-Enforcing

Author

Listed:
  • Paula Cordero Salas

    () (The University of Alabama)

  • Brian E. Roe

    (The Ohio State University)

  • Brent Sohngen

    (The Ohio State University)

Abstract

Abstract This paper examines self-enforcing contracts as a financial mechanism for reducing carbon emissions from deforestation and forest degradation when the opportunity cost of the land (i.e., landholder type) is private information and is imperfectly correlated over time (i.e., partially persistent types). Because self-enforcement limits the feasible incentives, the conservation levels are constrained by the surplus created. Regardless of the degree of persistence of such opportunity costs across contracting periods, a first-best self-enforcing contract can deliver “additional” carbon sequestration beyond the business as usual scenario only if the value of forest conservation is sufficiently high. Otherwise, self-enforcing contracts can induce some, suboptimal level of carbon sequestration. The degree of persistence of opportunity costs across periods does not affect the amount of total payments provided in the optimal menu of contracts, but greater persistence of opportunity cost types leads to contracts that feature more of the total payment as a bonus in contracts for landholders with a high opportunity cost for their land and more of the total payment as an upfront fixed payment for landholders with a low opportunity cost.

Suggested Citation

  • Paula Cordero Salas & Brian E. Roe & Brent Sohngen, 2018. "Additionality When REDD Contracts Must be Self-Enforcing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(1), pages 195-215, January.
  • Handle: RePEc:kap:enreec:v:69:y:2018:i:1:d:10.1007_s10640-016-0072-9
    DOI: 10.1007/s10640-016-0072-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Carbon sequestration; Climate change; Contracts; Development; Institutions; REDD; Self-enforcement;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • 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

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