The Economics of International Policy Agreements to Reduce Emissions from Deforestation and Degradation

This article synthesizes the key conceptual insights from economics for the design of international policies to reduce deforestation and forest degradation and increase reforestation (known as REDD+) as part of the international climate change mitigation effort. Most of the emphasis is on the contribution of economics to the effective design of results-based policies that introduce a price incentive for "strong" states (i.e., those with the institutional capacity to respond effectively to such policies) to address deforestation, degradation, and reforestation. The article also emphasizes how large-scale agreements can minimize leakage and adverse selection, the importance of allocating uncertainty with care, and the need to differentiate clearly among potentially conflicting objectives. It explores the conflicts between cost sharing and efficiency that arise because of private information and the inability of states to make long-term commitments. The article also examines policies that complement price incentives, and, for weak states, policies that can substitute for results-based agreements. (JEL: Q23, Q54, Q56, Q58) Copyright 2013, Oxford University Press.