Evaluating Myopic Loss Aversion of Forestland Owners

Abstract

Attracting forestland owners to participate in carbon markets can be challenging for several reasons including offset price volatility, legislative uncertainties, high costs of offset project development, long contract lengths, and landowners’ risk preferences. In this article, we elicit risk preferences and investigate Myopic Loss Aversion (MLA) of forestland owners using an economic experiment. The economic experiment is a betting game and we find that forestland owners exhibit MLA because they bet higher when returns from their investments are evaluated less frequently. Our results provide valuable information for developing carbon market protocols, especially in setting optimal evaluation periods of forest carbon offset projects.