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Maximizing the Impact of Climate Finance: Funding Projects or Pilot Projects?

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  • Matthew J. Kotchen

Abstract

This paper contributes to the understanding of how to maximize the impact of publicly provided climate finance to leverage the private sector. Agencies seeking to promote private investment in support of climate change mitigation and adaptation may have a choice between subsidizing projects or pilot projects. Pilots are either scaled down versions of full projects or an experimental phase that generates better information about whether a full project is likely to succeed or fail. Drawing on insights about the value of experimentation for entrepreneurship and raising private capital, the theoretical model developed herein provides guidance about when subsidizing projects or pilots is more efficient.

Suggested Citation

  • Matthew J. Kotchen, 2017. "Maximizing the Impact of Climate Finance: Funding Projects or Pilot Projects?," NBER Working Papers 23023, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23023
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    References listed on IDEAS

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    1. Carolyn Fischer, 2017. "Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 553-575, March.
    2. Ramana Nanda & Matthew Rhodes-Kropf, 2016. "Financing Entrepreneurial Experimentation," Innovation Policy and the Economy, University of Chicago Press, vol. 16(1), pages 1-23.
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    6. Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
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    9. Gompers, Paul A, 1995. "Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-1489, December.
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    11. Fisher, Anthony C., 2000. "Investment under uncertainty and option value in environmental economics," Resource and Energy Economics, Elsevier, vol. 22(3), pages 197-204, July.
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    Cited by:

    1. Jesse M. Keenan & Anurag Gumber, 2019. "California climate adaptation trust fund: exploring the leveraging of cap-and-trade proceeds," Environment Systems and Decisions, Springer, vol. 39(4), pages 454-465, December.
    2. Christopher J. Blackburn & Mallory E. Flowers & Daniel C. Matisoff & Juan Moreno‐Cruz, 2020. "Do Pilot and Demonstration Projects Work? Evidence from a Green Building Program," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(4), pages 1100-1132, September.
    3. Caroline Flammer, 2019. "Green Bonds: Effectiveness and Implications for Public Policy," NBER Chapters, in: Environmental and Energy Policy and the Economy, volume 1, pages 95-128, National Bureau of Economic Research, Inc.
    4. Amadu, Festus O. & McNamara, Paul E. & Miller, Daniel C., 2020. "Yield effects of climate-smart agriculture aid investment in southern Malawi," Food Policy, Elsevier, vol. 92(C).
    5. Caroline Flammer, 2019. "Green Bonds: Effectiveness and Implications for Public Policy," NBER Working Papers 25950, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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