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Addressing Additionality in REDD Contracts When Formal Enforcement is Absent / Paula Cordero Salas
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Salas, Paula Cordero
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Carbon sequestration.
- Climate change.
- Climate Change Mitigation and Green House Gases.
- Common Property Resource Development.
- Contract Law.
- Contracts.
- Debt Markets.
- Development.
- Energy.
- Environment.
- Forestry.
- Incomplete enforcement.
- Institutions.
- Local Subjects:
- Carbon sequestration.
- Climate change.
- Climate Change Mitigation and Green House Gases.
- Common Property Resource Development.
- Contract Law.
- Contracts.
- Debt Markets.
- Development.
- Energy.
- Environment.
- Forestry.
- Incomplete enforcement.
- Institutions.
- Physical Description:
- 1 online resource (31 pages)
- Place of Publication:
- Washington, D.C., The World Bank, 2013
- System Details:
- data file
- Summary:
- 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.
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