Pay for the Option to Pay? The Impact of Improved Scientific Information on Payments for Ecosystem Services

Susan Sayre

Environmental & Resource Economics, 2019, vol. 73, issue 2, No 9, 625 pages

Abstract: Abstract The scientific information needed to precisely link land use changes to changes in ecosystem service provision is often unavailable, particularly for hydrological ecosystem services. Potential buyers of ecosystem services must weigh the risk of paying to induce conservation that fails to deliver valuable ecosystem services against the risk that land is developed before its value is known. This paper uses a two period model to assess when expected future improvements in scientific information should substantially impact payments for conservation today. Optimal current payments increase, often substantially, as the quality of expected future information increases, but the gain from increasing payments to account for the expected degree of improved information is small in many cases. Larger values occur when the buyer believes that the land whose private development value is the highest also provides the highest ecosystem service value, when the buyer faces relatively more uncertainty about ecosystem service provision than about the cost of inducing conservation, and when the buyer believes land is highly likely to be developed absent incentive payments.

Keywords: Ecosystem services; Uncertainty; Option value; Numerical simulation (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10640-018-0275-3

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