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Author

Tianshu Guo

Date of Award

Spring 2011

Document Type

Restricted Thesis: Campus only access

Degree Name

Bachelor of Science

Department

Economics

First Advisor

Dr. Andrew Yates

Abstract

Ecosystem service markets have emerged as popular policy tools for ecosystem protection. This article explores optimal arrangements for the staging of ecosystem credit releases, an important policy affecting the supply side of ecosystem markets. Under staged credit releases, regulators allow an advance release of a fraction of total ecosystem credits created by suppliers prior to achieving ecological thresholds that would ordinarily trigger credit sales. Virtually no regulatory or research literature informs the structure of credit releases. We focus our analysis on U.S. aquatic ecosystem mitigation market and explore this issue using a principal-agent model of the behavior of regulators and wetland/stream mitigation bankers. We focus on tensions between regulators’ desire to induce market entry for mitigation bankers, while ensuring that bankers successfully complete ecological restoration. Our findings suggest some simple guidelines for establishing optimal level of advanced credit releases.

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