The REDD scheme to curb deforestation: An ill-defined system of incentives?

The need to find a global agreement to limit deforestation has led to the REDD scheme which proposes that developed countries pay developing countries for CO2 emissions saved through avoided deforestation and degradation. This article describes the issues at stake and demonstrates with a stylized transfer scheme which describes the negotiation between developing countries over the allocation of the forest fund, that there is a threshold in the level of contribution from the North. Below this level, the mechanism failed to curb the deforestation. Beyond this level, the REDD scheme induces perverse effects: the larger the North’s contribution, the larger the deforestation rate. Consequently, the mechanism is most effecitve only at a threshold level. Besides, it implies deforestation efforts that generally fall short of the Pareto optimal level.