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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. Ramana Nanda & Matthew Rhodes-Kropf, 2016. "Financing Entrepreneurial Experimentation," Innovation Policy and the Economy, University of Chicago Press, vol. 16(1), pages 1-23.
    2. William R. Kerr & Ramana Nanda & Matthew Rhodes-Kropf, 2014. "Entrepreneurship as Experimentation," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 25-48, Summer.
    3. Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
    4. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
    5. Mark T. Buntaine & William A. Pizer, 2015. "Encouraging clean energy investment in developing countries: what role for aid?," Climate Policy, Taylor & Francis Journals, vol. 15(5), pages 543-564, September.
    6. 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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    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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