Addressing Additionality in REDD Contracts When Formal Enforcement is Absent

31 Pages Posted: 20 Apr 2016

See all articles by Paula Cordero Salas

Paula Cordero Salas

University of Alabama; Ohio State University (OSU)

Brian E. Roe

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Brent Sohngen

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Date Written: June 1, 2013

Abstract

The success of reducing carbon emissions from deforestation and forest degradation depends on the design of an effective financial mechanism that provides landholders sufficient incentives to participate and provide additional and permanent carbon offsets. This paper proposes self-enforcing contracts as a potential solution for the constraints in formal contract enforcement derived from the stylized facts of reducing emissions from deforestation and forest degradation implementation in developing countries. It characterizes the optimal self-enforcing contract and provides the parameters under which private enforcement is sustainable when the seller type that is, the opportunity cost of the land, is private information. The optimal contract suggests that the seller with low opportunity cost receives a positive enforceable payment equivalent to the information rents required for self-selection, in contrast to when the buyer knows the seller type in which case all payments should be made contingent on additional forest conservation. When the buyer does not know the seller type, a first-best self-enforcing contract can be implemented if forest conservation is sufficiently productive. If the gains from forest conservation are small, self-enforcing contracts may induce some carbon sequestration by some or all seller types, depending on the value of the shared gains of the relationship.

Keywords: Climate Change Mitigation and Green House Gases, Contract Law, Debt Markets, Common Property Resource Development, Forestry

Suggested Citation

Cordero Salas, Paula and Roe, Brian E. and Sohngen, Brent L., Addressing Additionality in REDD Contracts When Formal Enforcement is Absent (June 1, 2013). World Bank Policy Research Working Paper No. 6502. Available at SSRN: https://ssrn.com/abstract=2285319

Paula Cordero Salas (Contact Author)

University of Alabama ( email )

250 Alston Hall
361 Stadium Drive,
Tuscaloosa, AL 35487
United States

Ohio State University (OSU) ( email )

2120 Fyffe Road
Columbus, OH OH 43210
United States

Brian E. Roe

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Columbus, OH 43210-1067
United States
614-688-5777 (Phone)

HOME PAGE: http://https://aede.osu.edu/our-people/brian-e-roe

Brent L. Sohngen

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Ag Admin
Columbus, OH 43210-1067
United States

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