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Additionality When REDD Contracts Must be Self-Enforcing

Paula Cordero Salas (), Brian Roe () and Brent Sohngen
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Paula Cordero Salas: The University of Alabama
Brent Sohngen: The Ohio State University

Environmental & Resource Economics, 2018, vol. 69, issue 1, 195-215

Abstract: Abstract This paper examines self-enforcing contracts as a financial mechanism for reducing carbon emissions from deforestation and forest degradation when the opportunity cost of the land (i.e., landholder type) is private information and is imperfectly correlated over time (i.e., partially persistent types). Because self-enforcement limits the feasible incentives, the conservation levels are constrained by the surplus created. Regardless of the degree of persistence of such opportunity costs across contracting periods, a first-best self-enforcing contract can deliver “additional” carbon sequestration beyond the business as usual scenario only if the value of forest conservation is sufficiently high. Otherwise, self-enforcing contracts can induce some, suboptimal level of carbon sequestration. The degree of persistence of opportunity costs across periods does not affect the amount of total payments provided in the optimal menu of contracts, but greater persistence of opportunity cost types leads to contracts that feature more of the total payment as a bonus in contracts for landholders with a high opportunity cost for their land and more of the total payment as an upfront fixed payment for landholders with a low opportunity cost.

Keywords: Carbon sequestration; Climate change; Contracts; Development; Institutions; REDD; Self-enforcement (search for similar items in EconPapers)
JEL-codes: D86 K12 L14 O12 Q54 Q56 (search for similar items in EconPapers)
Date: 2018
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