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

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  • Josef Janssen

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

Abstract

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.

Suggested Citation

  • Josef Janssen, 1999. "(Self-) Enforcement of Joint Implementation and Clean Development Mechanism Contracts," Working Papers 1999.14, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:1999.14
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    File URL: http://www.feem.it/userfiles/attach/Publication/NDL1999/NDL1999-014.pdf
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    References listed on IDEAS

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    1. Jonathan Thomas & Tim Worrall, 1994. "Foreign Direct Investment and the Risk of Expropriation," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 81-108.
    2. Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991. "Observable Contracts: Strategic Delegation and Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-559, August.
    3. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-894, Supplemen.
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    5. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December.
    6. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    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. 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.
    9. Carraro, Carlo & Siniscalco, Domenico, 1993. "Strategies for the international protection of the environment," Journal of Public Economics, Elsevier, vol. 52(3), pages 309-328, October.
    10. 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.
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    Citations

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    Cited by:

    1. Katrin Millock, 1999. "Endogenous Monitoring: a New Challenge for the Regulation of Energy Externalities," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(4), pages 635-646.
    2. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
    3. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers dp-02-23, Resources For the Future.
    4. Zavodov, Kirill, 2012. "Renewable energy investment and the clean development mechanism," Energy Policy, Elsevier, vol. 40(C), pages 81-89.
    5. Breton, Michele & Zaccour, Georges & Zahaf, Mehdi, 2006. "A game-theoretic formulation of joint implementation of environmental projects," European Journal of Operational Research, Elsevier, vol. 168(1), pages 221-239, January.

    More about this item

    Keywords

    Joint Implementation; Clean Development Mechanism; climate protection; international environmental agreements; international investments; contract enforcement; co-operation; incentive compatibility;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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