Payments for Carbon Sequestration in Agricultural Soils: Incentives for the Future and Rewards for the Past
According to several studies, agricultural carbon sequestration could be a relatively low cost opportunity to mitigate greenhouse gas concentrations. However the potential for storing additional carbon quantities in agricultural soils is critical, and depends on the past behavior of agricultural firms with regards to land heterogeneity. In this paper, we set incentive mechanisms to enhance carbon sequestration as a principal-agent relationship between a regulator and agricultural firms. The potential for additional carbon sequestration is treated as an exhaustible resource, under the assumption that the sequestration costs increase with the amount of carbon already stored. We specify contracts in order to induce truthful revelation by firms regarding the characteristics of their intrinsic behaviour towards carbon sequestration, while analytically characterizing the optimal path to sequestering carbon as an exhaustible resource. Firstly, we take into account the impact of the co-effects on the sequestration path, due to carbon sequestering practices. Secondly, we show that incomplete information slows the sequestration process and increases the unexploited potential of carbon sequestration. Thirdly, our paper provides a sound basis for differentiated per-hectare subsidies, dynamically defined for the entire duration of the contract. A type-dependent participation constraint acknowledges the previous efforts of the farmers who have previously accepted policy to incur some sequestration costs, and this constraint prevents them from deciding to switch back to less sequestering practices. The proposed contract has the advantage of avoiding the inefficiency of per-hectare subsidies, as well as the excess costs of a uniform per-tonne subsidy. In addition, it does not penalize early adopters of practices with more intensive sequestration.
|Date of creation:||24 Apr 2014|
|Date of revision:|
|Contact details of provider:|| Postal: 3 Gagarinskaya Street, 191187 St. Petersburg|
Phone: +7 (812) 275-1130
Web page: http://www.eu.spb.ru/econ/
More information through EDIRC
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.:
- Lionel Ragot & Katheline Schubert, 2006.
"The optimal carbon sequestration in agricultural soils : does the dynamics of the physical process matter ?,"
Cahiers de la Maison des Sciences Economiques
v06040, Université Panthéon-Sorbonne (Paris 1).
- Ragot, Lionel & Schubert, Katheline, 2008. "The optimal carbon sequestration in agricultural soils: Do the dynamics of the physical process matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3847-3865, December.
- Lionel Ragot & Katheline Schubert, 2008. "The optimal carbon sequestration in agricultural soils: Do the dynamics of the physical process matter?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00308806, HAL.
- Lionel Ragot & Katheline Schubert, 2006. "The optimal carbon sequestration in agricultural soils : does the dynamics of the physical process matter ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00115685, HAL.
- Kim, Man-Keun & McCarl, Bruce A. & Murray, Brian C., 2008. "Permanence discounting for land-based carbon sequestration," Ecological Economics, Elsevier, vol. 64(4), pages 763-769, February.
- Gulati, Sumeet & Vercammen, James, 2005.
"Time Inconsistent Resource Conservation Contracts,"
15838, University of British Columbia, Food and Resource Economics.
- Kurkalova, Lyubov A. & Kling, Catherine L. & Zhao, Jinhua, 2004.
"Value of Agricultural Nonpoint Source Pollution Measurement Technology: Assessment from a Policy Perspective,"
Staff General Research Papers Archive
12328, Iowa State University, Department of Economics.
- Lyubov Kurkalova & Catherine Kling & Jinhua Zhao, 2004. "Value of agricultural non-point source pollution measurement technology: assessment from a policy perspective," Applied Economics, Taylor & Francis Journals, vol. 36(20), pages 2287-2298.
- Jullien, Bruno, 2000.
"Participation Constraints in Adverse Selection Models,"
Journal of Economic Theory,
Elsevier, vol. 93(1), pages 1-47, July.
- Jullien, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
- Gaudet, Gerard & Lassere, Pierre & Long, Ngo Van, 1995. "Optimal Resource Royalties with Unknown and Temporally Independent Extraction Cost Structures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 715-49, August.
- Myerson, Roger B, 1979.
"Incentive Compatibility and the Bargaining Problem,"
Econometric Society, vol. 47(1), pages 61-73, January.
- Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Snorre Kverndokk, 1994.
"Depletion of Fossil Fuels and the impact of Global Warming,"
107, Statistics Norway, Research Department.
- Hoel, Michael & Kverndokk, Snorre, 1996. "Depletion of fossil fuels and the impacts of global warming," Resource and Energy Economics, Elsevier, vol. 18(2), pages 115-136, June.
- 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.
- Jean-Christophe Poudou & Lionel Thomas, 2000. "Concession minière et asymétrie d'information," Économie et Prévision, Programme National Persée, vol. 143(2), pages 129-138.
- Dustin L. Pendell & Jeffery R. Williams & Scott B. Boyles & Charles W. Rice & Richard G. Nelson, 2007. "Soil Carbon Sequestration Strategies with Alternative Tillage and Nitrogen Sources under Risk," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 29(2), pages 247-268.
- John M. Antle & Bocar Diagana, 2003. "Creating Incentives for the Adoption of Sustainable Agricultural Practices in Developing Countries: The Role of Soil Carbon Sequestration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1178-1184.
- David Levhari & Nissan Liviatan, 1977. "Notes on Hotelling's Economics of Exhaustible Resources," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 177-92, May.
- Baron, David P., 1989. "Design of regulatory mechanisms and institutions," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 24, pages 1347-1447 Elsevier.
- Canton, Joan & De Cara, Stéphane & Jayet, Pierre-Alain, 2009.
"Agri-environmental schemes: Adverse selection, information structure and delegation,"
Elsevier, vol. 68(7), pages 2114-2121, May.
- Joan Canton & Stephane De Cara & Pierre-Alain Jayet, 2009. "Agri-environmental schemes: Adverse selection, information structure and delegation," Post-Print hal-01172912, HAL.
- Robert N. Stavins, 1999. "The Costs of Carbon Sequestration: A Revealed-Preference Approach," American Economic Review, American Economic Association, vol. 89(4), pages 994-1009, September.
- Farzin, Y H, 1992. "The Time Path of Scarcity Rent in the Theory of Exhaustible Resources," Economic Journal, Royal Economic Society, vol. 102(413), pages 813-30, July.
- 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.
- Petter Osmundsen, 1998. "Dynamic Taxation of Non-renewable Natural Resources Under Asymmetric Information About Reserves," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 933-951, November.
- Hung, Nguyen Manh & Poudou, Jean-Christophe & Thomas, Lionel, 2006. "Optimal resource extraction contract with adverse selection," Resources Policy, Elsevier, vol. 31(2), pages 78-85, June.
- Linda M. Young & Alfons Weersink & Murray Fulton & B. James Deaton, 2007. "Carbon Sequestration in Agriculture: EU and US Perspectives," EuroChoices, The Agricultural Economics Society, vol. 6(1), pages 32-37, 04.
- González-Estrada, Ernesto & Rodriguez, Luis C. & Walen, Valerie K. & Naab, Jesse B. & Koo, Jawoo & Jones, James W. & Herrero, Mario & Thornton, Philip K., 2008. "Carbon sequestration and farm income in West Africa: Identifying best management practices for smallholder agricultural systems in northern Ghana," Ecological Economics, Elsevier, vol. 67(3), pages 492-502, October.
- Alfons Weersink & David Pannell & Murray Fulton & Andreas Meyer-Aurich, 2005. "Agriculture's Likely Role in Meeting Canada's Kyoto Commitments," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 53(4), pages 425-441, December.
When requesting a correction, please mention this item's handle: RePEc:eus:ce3swp:0114. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mikhail Pakhnin)
If references are entirely missing, you can add them using this form.