Conservation Payments under Risk: A Stochastic Dominance Approach

Pablo Benítez, Timo Kuosmanen, Roland Olschewski and Gerrit van Kooten

No 2004-05, Working Papers from University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group

Abstract: Conservation payments can be used to preserve forest and agroforest systems in developing countries. To explain landowners’ land-use decisions and determine the appropriate conservation payments, it is necessary to focus on risk associated with agricultural price and yield volatility. A theoretical framework is provided for assessing land-use allocation problems under risk and setting risk-efficient conservation payments when returns are not necessary normally distributed. Stochastic dominance rules are used to derive conditions for determining the conservation payments required to guarantee that the environmentally-preferred land use dominates, even when land uses are not considered to be mutually exclusive. An empirical application to shaded-coffee protection in the biologically important El Chocó region of West Ecuador shows that conservation payments required for preserving shaded-coffee areas are much higher than those calculated under the assumption of risk-neutrality. Further, the extant distribution of land has a strong impact on the required conservation payments.

Keywords: risk; conservation payments; land allocation; stochastic dominance; agroforest systems; portfolio diversification (search for similar items in EconPapers)
JEL-codes: C73 Q23 R14 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2004
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https://web.uvic.ca/~repa/publications/REPA%20work ... kingPaper2004-05.pdf Final version, 2004 (application/pdf)

Related works:
Journal Article: Conservation Payments under Risk: A Stochastic Dominance Approach (2006)
Working Paper: Conservation Payments under Risk: A Stochastic Dominance Approach (2005)
Working Paper: Conservation Payments under Risk: A Stochastic Dominance Approach (2005)
Working Paper: CONSERVATION PAYMENTS UNDER RISK: A STOCHASTIC DOMINANCE APPROACH (2004)
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