THE OPTIMAL LENGTH OF AN AGRICULTURAL CARBON CONTRACT

Sumeet Gulati () and James Vercammen

No 15843, Working Papers from University of British Columbia, Food and Resource Economics

Abstract: In this paper we present the economic determinants of the optimal length of a carbon offset contract. We find that because of a declining capacity of the soil to sequester carbon, the optimal length of the carbon contract is finite (the marginal benefit of remaining in the contract is declining over time, whereas marginal opportunity cost is rising). We also explore the effect of varying key parameter values on the optimal length in the contract. If the contract requires the farmer to sequester at a higher rate, the farmer chooses the contract for a shorter length of time, and this may decrease rather than increase social welfare. If society places a higher value on carbon accumulation, the contract is chosen for a longer length of time. Finally, if both the farmer and society have a higher discount rate, the model provides a somewhat surprising result. The overall time in the contract, and benefits from carbon accumulation are higher when the common discount rate is higher.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 26
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: The Optimal Length of an Agricultural Carbon Contract (2005)
Working Paper: The Optimal Length of an Agricultural Carbon Contract (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ubcwps:15843

DOI: 10.22004/ag.econ.15843

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