According to several studies, agricultural carbon sequestration could be a relativelylow cost opportunity to mitigate greenhouse gas (GHG) concentration and a promis-ing means that could be institutionalised. However the potential for additional carbonquantities in agricultural soils is critical and comes from the agricultural Örms behav-iour with regards to land heterogeneity. In this paper, our aim is to set incentivemechanisms to enhance carbon sequestration by agricultural Örms. A policymaker hasto arrange incentives as agricultural Örms have private information and do not sponta-neously switch to the required practices. Moreover, a novelty in our paper is to show that the potential for additional carbon sequestration is similar to an exhaustible re-source. As a result, we construct an intertemporal principal-agent model with adverseselection. Our contribution is to specify contracts in order to induce truthful revela-tion by the Örms regarding their intrinsic characteristics towards carbon sequestration,while analytically characterizing the optimal path to sequester carbon as an exhaustibleresource.
Contract design to sequester carbon in agricultural soils
14 January 2014