Designing Contracts for Reducing Emissions from Deforestation and Forest Degradation
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World Bank, Washington, DC
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Reduction of carbon emissions from
deforestation and forest degradation has been identified as
a cost effective element of the post-Kyoto strategy to
achieve long-term climate objectives. Its success depends
primarily on the design and implementation of a financial
mechanism that provides land-holders sufficient incentives
to participate in such scheme. This paper proposes
self-enforcing contracts (relational contracts) as a
potential solution for the constraints in formal contract
enforcement derived from the stylized facts of the
implementation because relational contracting relies upon
mutual private self-enforcement in a repeated transaction
framework. The paper derives an opportunity cost function
for land use and characterizes the optimal self-enforcing
contract as well as provide the parameters under which
private enforcement is sustainable. The optimal payment
scheme suggests that all payments should be made contingent
on the carbon offsets delivered, that is, at the end of the
contracting period. Thus, the optimal contract does not
observe any ex ante payment. Self-enforcement is more
difficult to sustain the higher the opportunity cost of
forest conservation is relative to the value of the carbon
offsets from the contract. Necessary extensions to the
relational contracting model are also discussed.
Palabras clave
ADVERSE SELECTION, AGRICULTURE, ATMOSPHERE, BIODIVERSITY, BIODIVERSITY CONSERVATION, CARBON, CARBON CREDITS, CARBON DIOXIDE, CARBON EMISSION, CARBON EMISSIONS, CARBON EMISSIONS FROM DEFORESTATION, CARBON MARKET, CARBON OFFSETS, CARBON REDUCTIONS, CARBON SEQUESTRATION, CARBON SINK, CARBON SINKS, CARBON STOCK, CARBON STOCKS, CARBON STORAGE, CENTER FOR INTERNATIONAL FORESTRY RESEARCH, CLIMATE, CLIMATE CHANGE, CLIMATE CHANGE MITIGATION, CO, CO2, COMPETITIVE MARKET, CONSERVATION OF CARBON, CONTRACT DESIGN, CONTRACT ENFORCEABILITY, CONTRACT ENFORCEMENT, CREDIT BUYER, DEVELOPED COUNTRIES, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DISCOUNT RATE, ECONOMIC ACTIVITY, ECONOMIC DEVELOPMENT, ECONOMIC RENTS, ECONOMICS, ECOSYSTEMS, EMISSION REDUCTION, EMISSION REDUCTION TARGETS, EMISSIONS, EMISSIONS FROM DEFORESTATION, EMISSIONS LIMITS, EMISSIONS REDUCTIONS, EMPIRICAL ANALYSIS, ENFORCEABILITY, ENFORCEABLE CONTRACTS, ENFORCEMENT MECHANISM, ENFORCEMENT MECHANISMS, ENFORCEMENT OF CONTRACTS, ENFORCEMENT REGIMES, ENVIRONMENTAL, ENVIRONMENTAL BENEFITS, ENVIRONMENTAL QUALITY, ENVIRONMENTAL SERVICES, ENVIRONMENTS, EQUILIBRIUM, FINANCIAL SUPPORT, FOREST, FOREST ACTIVITIES, FOREST ACTIVITY, FOREST CARBON, FOREST CARBON SINKS, FOREST CONSERVATION, FOREST DEGRADATION, FOREST LAND, FOREST PROTECTION, FOREST STOCKS, FORESTRY, FORESTRY PRODUCTS, FORESTRY PROJECTS, FORESTS, FRAMEWORK CONVENTION ON CLIMATE CHANGE, GHG, GLOBAL CLIMATE CHANGE, GLOBAL FOREST, GREENHOUSE, GREENHOUSE GAS, GREENHOUSE GAS EMISSIONS, GREENHOUSE GAS MITIGATION, INCENTIVE COMPATIBILITY CONSTRAINT, INCENTIVE COMPATIBILITY CONSTRAINTS, INTERNATIONAL BANK, INTERNATIONAL FORESTRY RESEARCH, INVOLUNTARY UNEMPLOYMENT, LAND AREA, LAND HOLDERS, LAND OWNER, LAND OWNERS, LAND USE, LAND USES, LAND-USE, LAND-USE CHANGE, LANDHOLDER, LEGAL SYSTEMS, LOCAL GOVERNMENTS, MARGINAL BENEFITS, MARGINAL COST, MORAL HAZARD, OPPORTUNITY COST, OPTIMAL CONTRACT, PERFECT INFORMATION, PRESENT VALUE, PRINCIPAL-AGENT PROBLEMS, PRIVATE ENFORCEMENT, REDUCING EMISSIONS, REFORESTATION, RENEGOTIATION, RETURN, RETURNS, SIDE PAYMENTS, SOCIALLY SUSTAINABLE DEVELOPMENT, SUSTAINABLE DEVELOPMENT, TEMPERATURE, TERMS OF TRADE, TIMBER, TIMBER HARVESTING, TRADING, TRANSACTION, TRUST FUND, VALUATION, WATERSHED, WILLINGNESS TO PAY