{"id":3816,"date":"2010-09-01T11:15:49","date_gmt":"2010-09-01T11:15:49","guid":{"rendered":"https:\/\/www.lse.ac.uk\/granthaminstitute\/?post_type=publication&p=3816"},"modified":"2024-08-19T14:33:32","modified_gmt":"2024-08-19T13:33:32","slug":"enforcement-proof-contracts-with-moral-hazard-in-precaution-ensuring-permanence-in-carbon-sequestration-working-paper-27","status":"publish","type":"publication","link":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/enforcement-proof-contracts-with-moral-hazard-in-precaution-ensuring-permanence-in-carbon-sequestration-working-paper-27\/","title":{"rendered":"Enforcement-proof contracts with moral hazard in precaution: ensuring ‘permanence’ in carbon sequestration"},"content":{"rendered":"\n

Working Paper 27<\/h2>\n

Abstract<\/h3>\n

Opportunistic behaviour due to incomplete contract enforcement is a risk in many economic transactions, such as forest carbon sequestration contracts.<\/p>\n

In this paper, an enforcement-proof incentive contract is developed, in which a buyer demands a guaranteed delivery of a good or service given a productive upfront payment, moral hazard in precaution, and the potential for opportunistic contract breach.<\/p>\n

The optimal design of forest carbon contracts to ensure permanence is derived. Buyer liability for loss of a carbon sink is shown to yield an inefficiently low level of sequestration. Yet it remains higher than the case where liability is neither allocated to the buyer nor the seller.<\/p>\n

Indexing contract prices to the seller’s opportunity costs potentially boosts the upfront investment, as does shifting liability to the seller, but not beyond first-best levels.<\/p>\n

Assigning liability is shown to have implications for forest carbon contracts in an international climate policy regime.<\/p>\n

Ian A. MacKenzie, Markus Ohndorf and Charles Palmer<\/p>\n\n","protected":false},"excerpt":{"rendered":"\n

Working Paper 27 Abstract Opportunistic behaviour due to incomplete contract enforcement is a risk in many economic transactions, such as…<\/p>\n\n","protected":false},"author":43,"featured_media":0,"template":"","tags":[375],"publication-type":[435],"topic_area":[4694],"class_list":["post-3816","publication","type-publication","status-publish","hentry","tag-ccs","publication-type-working-papers","topic_area-policy-evaluation"],"acf":{"downloads":{"ref_value":"field_52f16cc1a80f2","value":["https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-content\/uploads\/2014\/02\/WP27-carbon-sequestration.pdf"],"type":"download","post_type":""},"profile_link":{"ref_value":"field_52f164b5189e9","value":["charles-palmer"],"type":"relationship","post_type":"profile"},"spotlight":{"ref_value":"field_52f80896506d3","value":"","type":false,"post_type":""},"exclude_from_sync":{"ref_value":"field_560538b0e7350","value":"0","type":false,"post_type":""},"rss_newsletter":{"ref_value":"field_54f5c2c1544d8","value":"","type":false,"post_type":""}},"yoast_head":"\nEnforcement-proof contracts with moral hazard in precaution: ensuring 'permanence' in carbon sequestration - 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