Files
Abstract
We examine the use of performance bonds in tropical forest concessions. Bonds are a promising
new policy instrument that have been discussed in several articles and used in some cases as a way
of encouraging adoption of sustainable forest management practices, including reduced impact
logging methods, and have been proposed due to apparent failures of traditional Pigouvian
instruments. Our research examines the impact of three practical complications hindering the
effective adoption of bonding schemes: harvester participation constraints, government repayment
risk, and imperfect enforcement. By building a simple two-stage analytical model, we first
highlight the role of participation constraints in the concession bond design problem. Model
simulations are used to examine policy implications such as potential for REDD+ payments in
improving the bonding outcomes, and how high these payments should be in order to guarantee full
compliance with reduced impact logging.