Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers
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..
|Date of creation:||Aug 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.motu.org.nz
More information through EDIRC
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.:
- 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.
- 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.
- 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.
- Fischer, Carolyn, 2004.
"Project-Based Mechanisms for Emissions Reductions: Balancing Trade-offs with Baselines,"
dp-04-32, Resources For the Future.
- Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
- 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.
- Suzi Kerr & Leslie Lipper & Alexander S.P. Pfaff & Romina Cavatassi & Benjamin Davis & Joanna Hendy & Arturo Sanchez, 2004. "Will Buying Tropical Forest Carbon Benefit The Poor? Evidence from Costa Rica," Working Papers 04-20, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
- 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.
- Lewis, David J. & Plantinga, Andrew J. & Nelson, Erik & Polasky, Stephen, 2009. "The Efficiency of Voluntary Incentive Policies for Preventing Biodiversity Loss," Staff Paper Series 533, University of Wisconsin, Agricultural and Applied Economics.
- 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(03), pages 265-289, July.
When requesting a correction, please mention this item's handle: RePEc:mtu:wpaper:10_04. 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: (Maxine Watene)
If references are entirely missing, you can add them using this form.