IDEAS home Printed from https://ideas.repec.org/p/ags/nzar10/96813.html
   My bibliography  Save this paper

Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers

Author

Listed:
  • van Benthem, Arthur A.
  • Kerr, Suzi

Abstract

As 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.

Suggested Citation

  • 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.
  • Handle: RePEc:ags:nzar10:96813
    DOI: 10.22004/ag.econ.96813
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/96813/files/2010_5_voluntary%20deforestation%20policy.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.96813?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mason, Charles F. & Plantinga, Andrew J., 2013. "The additionality problem with offsets: Optimal contracts for carbon sequestration in forests," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 1-14.
    2. Strand, Jon, 1997. "Developing-country resource extraction with asymmetric information and sovereign debt: a theoretical analysis," Environment and Development Economics, Cambridge University Press, vol. 2(3), pages 265-289, July.
    3. Kerr, Suzi & Lipper, Leslie & Pfaff, Alexander S.P. & Cavatassi, Romina & Davis, Benjamin & Hendy, Joanna & Sanchez, Arturo, 2004. "Will Buying Tropical Forest Carbon Benefit The Poor? Evidence from Costa Rica," ESA Working Papers 23807, Food and Agriculture Organization of the United Nations, Agricultural Development Economics Division (ESA).
    4. Juan-Pablo Montero, 1999. "Voluntary Compliance with Market-Based Environmental Policy: Evidence from the U.S. Acid Rain Program," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 998-1033, October.
    5. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
    6. Montero, Juan-Pablo, 2000. "Optimal design of a phase-in emissions trading program," Journal of Public Economics, Elsevier, vol. 75(2), pages 273-291, February.
    7. Arguedas, Carmen & van Soest, Daan P., 2009. "On reducing the windfall profits in environmental subsidy programs," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 192-205, September.
    8. Lewis, David J. & Plantinga, Andrew J. & Nelson, Erik & Polasky, Stephen, 2011. "The efficiency of voluntary incentive policies for preventing biodiversity loss," Resource and Energy Economics, Elsevier, vol. 33(1), pages 192-211, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mason, Charles F. & Plantinga, Andrew J., 2013. "The additionality problem with offsets: Optimal contracts for carbon sequestration in forests," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 1-14.
    2. Mariano Mezzatesta & David A. Newburn & Richard T. Woodward, 2013. "Additionality and the Adoption of Farm Conservation Practices," Land Economics, University of Wisconsin Press, vol. 89(4), pages 722-742.
    3. Salas, Paula Cordero & Roe, Brian E. & Sohngen, Brent, 2012. "Addressing Additionality in REDD Contracts when Formal Enforcement is Absent," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124505, Agricultural and Applied Economics Association.
    4. Charles F. Mason, 2018. "Optimal Contracts for Discouraging Deforestation with Risk Averse Agents," CESifo Working Paper Series 7067, CESifo.
    5. Eric Karpas & Suzi Kerr, 2011. "Preliminary Evidence on Responses to the New Zealand Forestry Emissions Trading Scheme," Working Papers 11_09, Motu Economic and Public Policy Research.
    6. Liu, Xiaoyu & Cui, Qingbin, 2017. "Baseline manipulation in voluntary carbon offset programs," Energy Policy, Elsevier, vol. 111(C), pages 9-17.
    7. Mason, Charles F. & Plantinga, Andrew J., 2011. "Contracting for Impure Public Goods: Carbon Offsets and Additionality," Sustainable Development Papers 101290, Fondazione Eni Enrico Mattei (FEEM).
    8. Naveen Adusumilli & Rowell Dikitanan & Hua Wang, 2019. "Effect of Cost-Sharing Federal Programs on Adoption of Water Conservation Practices: Results from Propensity Score Matching Approach," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-16, July.
    9. Woodward, Richard T. & Newburn, David A. & Mezzatesta, Mariano, 2016. "Additionality and reverse crowding out for pollution offsets in water quality trading," Ecological Economics, Elsevier, vol. 128(C), pages 224-231.
    10. Suzi Kerr & Adam Millard-Ball, 2012. "Cooperation To Reduce Developing Country Emissions," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-30.
    11. 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.
    12. 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 Sch," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 40-55.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. van Benthem, Arthur & Kerr, Suzi, 2013. "Scale and transfers in international emissions offset programs," Journal of Public Economics, Elsevier, vol. 107(C), pages 31-46.
    2. Knut Rosendahl & Jon Strand, 2015. "Emissions Trading with Offset Markets and Free Quota Allocations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 243-271, June.
    3. Antonio Bento & Ravi Kanbur & Benjamin Leard, 2016. "On the importance of baseline setting in carbon offsets markets," Climatic Change, Springer, vol. 137(3), pages 625-637, August.
    4. Liu, Xiaoyu & Cui, Qingbin, 2017. "Baseline manipulation in voluntary carbon offset programs," Energy Policy, Elsevier, vol. 111(C), pages 9-17.
    5. Bento, Antonio & Ho, Benjamin & Ramirez-Basora, Mario, 2015. "Optimal monitoring and offset prices in voluntary emissions markets," Resource and Energy Economics, Elsevier, vol. 41(C), pages 202-223.
    6. 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 Sch," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 40-55.
    7. Juan Pablo Montero, 1998. "Optimal Opt-in "Climate" Contracts," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 363-384, November.
    8. Suzi Kerr, 2013. "Managing Risks and Tradeoffs Using Water Markets," Working Papers 13_13, Motu Economic and Public Policy Research.
    9. Strand, Jon, 2016. "Mitigation incentives with climate finance and treaty options," Energy Economics, Elsevier, vol. 57(C), pages 166-174.
    10. Andrew Manale & Cynthia Morgan & Glenn Sheriff & David Simpson, 2011. "Offset markets for nutrient and sediment discharges in the Chesapeake Bay Watershed: Policy tradeoffs and potential steps forward," NCEE Working Paper Series 201105, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2011.
    11. Carsten Helm & Franz Wirl, 2011. "International Environmental Agreements: Incentive Contracts with Multilateral Externalities," Working Papers V-336-11, University of Oldenburg, Department of Economics, revised Jun 2011.
    12. Horowitz, John K. & Just, Richard E., 2013. "Economics of additionality for environmental services from agriculture," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 105-122.
    13. Springborn, Michael & Yeo, Boon-Ling & Lee, Juhwan & Six, Johan, 2013. "Crediting uncertain ecosystem services in a market," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 554-572.
    14. repec:old:wpaper:336-11 is not listed on IDEAS
    15. Heather Klemick, 2012. "What is the Optimal Offsets Discount under a Second-Best Cap & Trade Policy?," NCEE Working Paper Series 201204, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jul 2012.
    16. repec:zbw:hohpro:336-11 is not listed on IDEAS
    17. Guy Meunier & Jean-Pierre Ponssard, 2021. "Designing Conditional Schemes for Green Industrial Policy under Different Information Structures," CESifo Working Paper Series 8881, CESifo.
    18. Andrew B. Rosenberg, 2020. "Targeting of Water Rights Retirement Programs: Evidence from Kansas," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(5), pages 1425-1447, October.
    19. Juan-Pablo Montero, 2004. "Markets for environmental protection: design and performance incomplete enforcement," Estudios de Economia, University of Chile, Department of Economics, vol. 31(1 Year 20), pages 79-99, June.
    20. Strand, Jon, 2011. "Carbon offsets with endogenous environmental policy," Energy Economics, Elsevier, vol. 33(2), pages 371-378, March.
    21. Chau, Nancy H. & Qin, Yu & Zhang, Weiwen, 2015. "Networked Leaders in the Shadow of the Market – A Chinese Experiment in Allocating Land Conversion Rights," Working Papers 250022, Cornell University, Department of Applied Economics and Management.
    22. Sims, Katharine R.E. & Alix-Garcia, Jennifer M., 2017. "Parks versus PES: Evaluating direct and incentive-based land conservation in Mexico," Journal of Environmental Economics and Management, Elsevier, vol. 86(C), pages 8-28.

    More about this item

    Keywords

    Agricultural and Food Policy; Community/Rural/Urban Development; Environmental Economics and Policy; Land Economics/Use;
    All these keywords.

    JEL classification:

    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:nzar10:96813. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/nzareea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.