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The role of deforestation risk and calibrated compensation in designing payments for environmental services

Alix-Garcia, Jennifer, Alain de Janvry () and Elisabeth Sadoulet ()

Environment and Development Economics, 2008, vol. 13, issue 03, 375-394

Abstract: This paper discusses the gain in efficiency from including deforestation risk as a targeting criterion in payments for environmental services (PES) programs. We contrast two payment schemes that we simulate using data from Mexican common property forests: a flat payment scheme with a cap on allowable hectares per enrollee, similar to the program implemented in many countries, and a payment that takes deforestation risk and heterogeneity in land productivity into account. We simulate the latter strategy both with and without a budget constraint. Using observed past deforestation, we find that while risk-targeted payments are far more efficient, capped flat payments are more egalitarian. We also consider the characteristics of communities receiving payments from both programs. We find that the risk-weighted scheme results in more payments to poor communities, and that these payments are more efficient than those made to non-poor ejidos. Finally, we show that the risk of deforestation can be predicted quite precisely with indicators that are easily observable and that cannot be manipulated by the community.

Date: 2008
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Handle: RePEc:cup:endeec:v:13:y:2008:i:03:p:375-394_00