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Cooperation and reciprocity in carbon sequestration contracts

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  • Cordero Salas, Paula

Abstract

This paper studies the role of cooperation and reciprocity on the structure of self-enforcing carbon sequestration contracts. The optimal contract is derived as a result of the optimizing actions of purely self-interested agents, and agents that act according to social or egoistic preferences. The analysis finds that buyers'preferences do not affect contract structure unless the buyer is averse to inequality. In contrast, the optimal payment rule is directly related to the seller's preferences as the payment must motivate the seller to comply with forest conservation. It also finds that the presence of altruistic or warm glow preferences increases the likelihood of cooperation in the long-term relationship relative to the case of selfish parties. These results imply that agencies or organizations that are not only concerned about carbon sequestration but also have objectives related to the economic development of small land holders may be more successful in the implementation contracts to reduce emissions from deforestation and forest degradation.

Suggested Citation

  • Cordero Salas, Paula, 2013. "Cooperation and reciprocity in carbon sequestration contracts," Policy Research Working Paper Series 6521, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6521
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    References listed on IDEAS

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    1. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 817-869.
    2. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    3. Roe, Brian E. & Wu, Steven Y., 2009. "Do the Selfish Mimic Cooperators? Experimental Evidence from Finitely-Repeated Labor Markets," IZA Discussion Papers 4084, Institute for the Study of Labor (IZA).
    4. Ernst Fehr & Alexander Klein & Klaus M Schmidt, 2007. "Fairness and Contract Design," Econometrica, Econometric Society, vol. 75(1), pages 121-154, January.
    5. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-1458, December.
    6. Videras Julio R & Owen Ann L, 2006. "Public Goods Provision and Well-Being: Empirical Evidence Consistent with the Warm Glow Theory," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-40, April.
    7. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 1998. "A theoretical analysis of altruism and decision error in public goods games," Journal of Public Economics, Elsevier, vol. 70(2), pages 297-323, November.
    8. Steven Y. Wu & Brian Roe, 2007. "Contract Enforcement, Social Efficiency, and Distribution: Some Experimental Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 243-258.
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    Keywords

    Climate Change Mitigation and Green House Gases; Contract Law; Debt Markets; E-Business; Common Property Resource Development;

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