Liquidity Constraints and Deforestation: The Limitations of Payments for Ecosystem Services

Seema Jayachandran

American Economic Review, 2013, vol. 103, issue 3, 309-13

Abstract: A popular environmental policy is to pay forest owners for avoiding deforestation on their land. This is an example of "payments for ecosystem services" (PES). This paper shows that liquidity constraints can limit the effectiveness of PES programs. If an individual would have cut down trees to sell them, his opportunity costs are more front-loaded than the stream of PES income. If credit constrained, he might decline the program even if the net present value (NPV) of the PES income exceeds the NPV of his opportunity costs. I present evidence consistent with this prediction using data on forest owners in Uganda.

JEL-codes: O13 Q23 Q28 Q53 Q54 Q58 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.3.309
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.3.309 (application/pdf)
http://www.aeaweb.org/aer/ds/may2013/P2013_4362_ds.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:103:y:2013:i:3:p:309-13

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().