Private sector participation and incentive coordination of actors in REDD+

How do different contractual arrangements affect the behavior of private investors in Reducing Emissions from Deforestation and Degradation (REDD+)? How to attract private investors to participate in REDD+? The complex entanglement between REDD+ and private investors has received relatively little attention in existing studies. To respond to this gap, this paper examines the dynamic effects of benefit-sharing, cost-sharing, and incentive-coordination contracts on actors' behavior during the project period by using a theoretical framework based on differential games. It argues that incentive-coordination contracts in REDD+ are a fair and effective mechanism, as they can not only motivate actors to reduce emissions, but also ensure the equality of all actors' decision-making status. The market-oriented incentive structure constructed by incentive-coordination contracts helps to overcome the shortcomings of the current REDD+ contracts that rely on command-and-control instruments, and helps to improve the total profits of REDD+ projects. While questions remain about how to integrate incentive-coordination mechanisms into REDD+, incentive-coordination contracts can improve private investors' understanding of the value and risks of REDD+ projects by negotiating the optimal benefit-distribution rate. Incentive-coordination contracts are, therefore, a viable solution to attract private sector participation in REDD+.