Cordero Salas, PaulaRoe, BrianSohngen, Brent2013-09-262013-09-262013-06https://hdl.handle.net/10986/15861The 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.en-USCC BY 3.0 IGOAFFORESTATIONAFFORESTATION PROJECTSAGRICULTUREALLOCATION OF LANDASYMMETRIC INFORMATIONATMOSPHEREBILATERAL CONTRACTSBIODIVERSITYBIODIVERSITY CONSERVATIONBREACHCARBONCARBON CREDITSCARBON EMISSIONCARBON EMISSIONSCARBON EMISSIONS FROM DEFORESTATIONCARBON OFFSETCARBON OFFSETSCARBON SEQUESTRATIONCARBON SINKSCARBON STOCKSCARBON-SEQUESTRATIONCENTER FOR INTERNATIONAL FORESTRY RESEARCHCLIMATECLIMATE CHANGECOCOMPENSATIONCONTRACT DESIGNCONTRACT ENFORCEMENTCONTRACT OBLIGATIONSCONTRACT OFFERSCONTRACT THEORYCOOPERATIVE EQUILIBRIUMDEVELOPING COUNTRIESECONOMIC DEVELOPMENTENFORCEABILITYENFORCEMENT CONSTRAINTENFORCEMENT MECHANISMSENVIRONMENTSEQUILIBRIUMEXPENDITURESFEASIBLE CONTRACTSFINANCIAL SUPPORTFORESTFOREST ACTIVITIESFOREST ACTIVITYFOREST CARBONFOREST CARBON SINKSFOREST CONSERVATIONFOREST DEGRADATIONFOREST LANDFOREST PROTECTIONFORESTRYFORESTSFRAMEWORK CONVENTION ON CLIMATE CHANGEGHGGLOBAL CLIMATE CHANGEGOOD FAITHGREENHOUSEGREENHOUSE GASGREENHOUSE GAS MITIGATIONGREENHOUSE-GASGREENHOUSE-GAS EMISSIONSGROVESHETEROGENEITYHIDDEN INFORMATIONHOLDINGINCENTIVE COMPATIBILITY CONSTRAINTINCENTIVE COMPATIBILITY CONSTRAINTSINCOMPLETE CONTRACTINCOMPLETE CONTRACTSINDIVIDUAL RATIONALITY CONSTRAINTINFORMATION ASYMMETRIESINFORMATION ASYMMETRYINTERNATIONAL BANKINTERNATIONAL FORESTRY RESEARCHLAND USELAND USESLAND-USELANDHOLDERLANDHOLDERSLANDOWNERLANDOWNERSLEGAL SYSTEMSLEGALLY BINDING OBLIGATIONLIQUIDITYLIQUIDITY CONSTRAINTSLITERATURE ON CONTRACTMORAL HAZARDOPEN ACCESSOPPORTUNITY COSTOPPORTUNITY COSTSOPTIMAL CONTRACTOPTIMAL CONTRACTSPARTICIPATION CONSTRAINTPHPPPRIVATE ENFORCEMENTPROOF OF PROPOSITIONREASONABLE COSTRELATIONAL CONTRACTRELATIONAL CONTRACTSRENEGOTIATIONRETURNRETURNSRISK AVERSIONRISK-NEUTRALSELLERSELLERSTIMBERTIMBER HARVESTINGTRADINGTRUST FUNDWOODWorld Bank10.1596/1813-9450-6502