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Market uncertainty and risk transfer in REDD projects


Chesney, Marc; Gheyssens, Jonathan; Troja, Bruno (2017). Market uncertainty and risk transfer in REDD projects. Journal of Sustainable Forestry, 36(5):535-553.

Abstract

The central role played by deforestation in the increase in global CO2 emissions has recently justified the development of new schemes which offer compensation in exchange for reductions in emissions from deforestation (Reducing Emissions from Deforestation and Forest Degradation, REDD). The design of REDD projects can be based on market prices to set how deforesters are compensated for avoiding deforestation. With limited experiments involving a true market integration of REDD, it remains however difficult to assess the potential impact market price uncertainties may have on the targets of the protective scheme. The goal of this article is to assess the optimal choices of a forest owner, in terms of his combined decision of choosing when to protect his forest, and the deforestation rate prior to it, given his option to enter an irreversible REDD scheme that provides him with uncertain cash flows under different risk aversion scenarios.

Abstract

The central role played by deforestation in the increase in global CO2 emissions has recently justified the development of new schemes which offer compensation in exchange for reductions in emissions from deforestation (Reducing Emissions from Deforestation and Forest Degradation, REDD). The design of REDD projects can be based on market prices to set how deforesters are compensated for avoiding deforestation. With limited experiments involving a true market integration of REDD, it remains however difficult to assess the potential impact market price uncertainties may have on the targets of the protective scheme. The goal of this article is to assess the optimal choices of a forest owner, in terms of his combined decision of choosing when to protect his forest, and the deforestation rate prior to it, given his option to enter an irreversible REDD scheme that provides him with uncertain cash flows under different risk aversion scenarios.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 July 2017
Deposited On:22 Aug 2017 06:56
Last Modified:30 Aug 2017 03:06
Publisher:Taylor & Francis
Publisher DOI:https://doi.org/10.1080/10549811.2017.1326940
Other Identification Number:merlin-id:14780

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