Environmental Management

, Volume 53, Issue 3, pp 496–509 | Cite as

Optimal Advanced Credit Releases in Ecosystem Service Markets



Ecosystem service markets are popular policy tools for ecosystem protection. Advanced credit releases are an important factor affecting the supply side of ecosystem markets. Under an advanced credit release policy, regulators give ecosystem suppliers a fraction of the total ecosystem credits generated by a restoration project before it is verified that the project actually achieves the required ecological thresholds. In spite of their prominent role in ecosystem markets, there is virtually no regulatory or research literature on the proper design of advanced credit release policies. Using U.S. aquatic ecosystem markets as an example, we develop a principal–agent model of the behavior of regulators and wetland/stream mitigation bankers to determine and explore the optimal degree of advance credit release. The model highlights the tension between regulators’ desire to induce market participation, while at the same time ensuring that bankers successfully complete ecological restoration. Our findings suggest several simple guidelines for strengthening advanced credit release policy.


Ecosystem service markets Principal agent model Wetland and stream mitigation banking Compensatory mitigation Offset market 



This research was supported by NSF Grant number 0909275. We would like to thank Garth Heutel, Stephen Holland, Jim Monks, Paul Ferraro, Kurt Schnier, and seminar participants at the University of Richmond, the University of North Carolina at Chapel Hill, and the 2011 Southern Economic Society Annual Meeting for helpful comments.


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Todd K. BenDor
    • 1
  • Tianshu Guo
    • 2
  • Andrew J. Yates
    • 3
  1. 1.Department of City and Regional PlanningUniversity of North Carolina at Chapel HillChapel HillUSA
  2. 2.College of EngineeringUniversity of CaliforniaBerkeleyUSA
  3. 3.Department of Economics and Curriculum for the Environment and EcologyUniversity of North Carolina at Chapel HillChapel HillUSA

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