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Accountability mechanisms in international climate change financing

Author: Basak, R.
Author: van der Werf, E.
Year: 2019
ISSN: 1567-9764
URI: https://hdl.handle.net/10883/20233
Abstract: This paper uses agency theory to analyse the incentives that a donor (principal) and recipient (agent) face as actors in an accountability regime for the financing of international climate change projects in developing countries. We address the following question: What accountability measures serve to align the incentives of the donor with those of the recipient in climate change financing? We focus on the relationship between the Green Climate Fund as a donor and one of its Accredited Entities as a recipient. We examine the consequences of misaligned incentives and asymmetric information, looking at a specific set of accountability measures, including performance indicators, penalties for poor performance, as well as the role of pressure exerted by civil society organisations (CSOs). We find that the use of imperfect performance indicators can reduce the risk of project failure if they are strongly correlated with adaptation and mitigation impacts. Penalties can have a positive impact on project outcomes, but impose risks upon the agent, which could lead him to refuse the contract for the implementation of the climate change project. The pressure of CSOs was found to have the potential to motivate donors and recipients to become more efficient and effective in their delivery of projects but could also lead to the donor choosing to finance lower-risk projects with fewer climate change benefits. We suggest that accountability requirements need to be carefully balanced with other objectives, including having a diverse set of entities willing to bid for the delivery of projects.
Format: PDF
Language: English
Publisher: Springer
Copyright: CIMMYT manages Intellectual Assets as International Public Goods. The user is free to download, print, store and share this work. In case you want to translate or create any other derivative work and share or distribute such translation/derivative work, please contact CIMMYT-Knowledge-Center@cgiar.org indicating the work you want to use and the kind of use you intend; CIMMYT will contact you with the suitable license for that purpose.
Type: Article
Place of Publication: Netherlands
Pages: 197-313
Issue: 3
Volume: 19
DOI: 10.1007/s10784-019-09437-8
Keywords: Principal-Agent Problem
Keywords: Information Asymmetry
Keywords: Climate Finance
Keywords: Performance Indicators
Keywords: Green Climate Fund
Agrovoc: ACCOUNTING
Agrovoc: CLIMATE CHANGE
Agrovoc: INDICATORS
Agrovoc: CIVIL SOCIETY ORGANIZATIONS
Agrovoc: FUND
Journal: International Environmental Agreements: Politics, Law and Economics


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