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(Self-) Enforcement of Joint Implementation and Clean Development Mechanism Contracts

  • Josef Janssen

    (Institute for Economy and the Environment at the University of St. Gallen (IWO-HSG), Switzerland and Fondazione Eni Enrico Mattei, Milan, Italy)

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    International climate protection investments (Joint Implementation and Clean Development Mechanism projects) are burdened with problems of contract enforcement, which prevent the realisation of efficiency gains associated with these investments. The paper analyses this problem from the perspective of non-cooperative game theory and proposes two different solutions to the co-operation problem. The first analyses the potential role of national environmental authorities in facilitating credible commitment of the project host operating under its jurisdiction. It is argued that the threat of punishing the project host if he breaches the contract may serve this purpose. The effective level of punishment is derived. The second option involves strategic delegation of contract implementation to a third party operating under the same jurisdiction as the project host. Again, the paper explores the conditions that ensure incentive-compatibility. Both options are based on the idea that the project sponsor may commit himself credibly by becoming a Stackelberg leader.

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    File URL: http://www.feem.it/userfiles/attach/Publication/NDL1999/NDL1999-014.pdf
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    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.14.

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    Date of creation: Feb 1999
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    Handle: RePEc:fem:femwpa:1999.14
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    1. Farrell, Joseph & Maskin, Eric, 1987. "Renegotiation in Repeated Games," Department of Economics, Working Paper Series qt9wv3h5jb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Thomas, J. & Worral, T., 1991. "Foreign Direcyt Investment and the Risk of Expropriation," Papers 9126, Tilburg - Center for Economic Research.
    3. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
    4. Staiger, Robert W., 1995. "International rules and institutions for trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 29, pages 1495-1551 Elsevier.
    5. Mohr, Ernst, 1995. "International Environmental Permit Trade and Debt: The Consequences of Country Sovereignty and Cross-Default Policies," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 1-19, February.
    6. Chaim Fershtman & Kenneth L. Judd & Ehud Kalai, 1990. "Observable Contracts: Strategic Delegation and Cooperation," Discussion Papers 879, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Mohr, Ernst & Thomas, Jonathan P., 1998. "Pooling sovereign risks: The case of environmental treaties and international debt," Journal of Development Economics, Elsevier, vol. 55(1), pages 173-190, February.
    8. Carraro, Carlo & Siniscalco, Domenico, 1991. "Strategies for the International Protection of the Environment," CEPR Discussion Papers 568, C.E.P.R. Discussion Papers.
    9. North, Douglass C., 1993. "Economic Performance through Time," Nobel Prize in Economics documents 1993-2, Nobel Prize Committee.
    10. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen.
    11. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
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