Conservation by Lending

12 Pages Posted: 10 Jul 2023

See all articles by Bård Harstad

Bård Harstad

Stanford Graduate School of Business

Kjetil Storesletten

University of Minnesota

Multiple version iconThere are 2 versions of this paper

Date Written: June 29, 2023

Abstract

This project analyzes how a principal can motivate an agent to conserve rather than exploit a depletable resource. This dynamic problem is relevant for tropical deforestation as well as for other environmental problems. It is shown that the smaller is the agent's discount factor (e.g., because of political instability), the more the principal benefits from debt-for-nature contracts compared to flow payments (in return for lower deforestation). The debt-for-nature contract combines a loan to the agent with repayments that are contingent on the forest cover.

Keywords: Environmental conservation, sovereign debt, sustainability-linked bonds, default, hyperbolic discounting, time inconsistency.

JEL Classification: F53, H87, Q54

Suggested Citation

Harstad, Bard and Storesletten, Kjetil, Conservation by Lending (June 29, 2023). Available at SSRN: https://ssrn.com/abstract=4494832 or http://dx.doi.org/10.2139/ssrn.4494832

Bard Harstad (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
94305
United States

Kjetil Storesletten

University of Minnesota ( email )

10 University Avenue
Duluth, MN 55810
United States

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