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Contracting for Impure Public Goods: Carbon Offsets and Additionality

  • Charles F. Mason

    (Department of Economics & Finance, University of Wyoming)

  • Andrew J. Plantinga

    (Department of Agricultural and Resource Economics, Oregon State University)

Governments contracting with private agents for the provision of an impure public good must contend with agents who would potentially supply the good absent any payments. This additionality problem is centrally important in the use of carbon offsets as part of climate change mitigation. Analyzing optimal contracts for forest carbon sequestration, an important offset category, we conduct a national-scale simulation using results from an econometric model of land-use change. The results indicate that for an increase in forest area of 50 million acres, annual government expenditures with optimal contracts are about $4 billion lower compared than under a uniform subsidy.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.13.

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Date of creation: Feb 2011
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Handle: RePEc:fem:femwpa:2011.13
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  1. 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.
  2. G. Cornelis van Kooten & Alison Eagle & James Manley & Tara Smolak, 2004. "How Costly are Carbon Offsets? A Meta-Analysis of Forest Carbon Sinks," Working Papers 2004-01, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
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