Designing Cost-Effective Forest Conservation Programs
Deforestation is a significant contributor to greenhouse gas emissions and biodiversity loss. In Redesigning Payments for Ecosystem Services to Increase Cost-Effectiveness (NBER Working Paper 32689), Santiago Izquierdo-Tort, Seema Jayachandran, and Santiago Saavedra investigate the incentive effects of Payments for Ecosystem Services (PES) programs, which have emerged as tools for conserving forests. PES programs offer cash or in-kind incentives to participating landowners and condition payments on specific natural resource management activities, such as forest protection. PES effectiveness depends on the extent to which payments go toward protecting forests that would not have been protected even without financial incentive.
Allowing landowners to selectively enroll parcels leads to less forest conservation and higher costs per hectare conserved.
The researchers investigate whether requiring PES participants to enroll all of their eligible forest landholdings, rather than allowing them to pick and choose plots, increases the programs’ cost-effectiveness. They focus on participants’ strategic selection of which land to enroll. If eligible landowners enroll only the subset of their lands that they were unlikely to deforest, payments will be inframarginal: they will not affect the extent of conservation. Consider the owner of 20 forest hectares who wants to clear 4 hectares during the contract period. With a standard PES scheme, she can enroll the 16 hectares that will not be cleared and keep them intact while deforesting the other 4 hectares. She will receive payment for 16 conserved acres despite not reducing her deforestation. In contrast, a full-enrollment scheme offers her the choice of not participating or enrolling all 20 hectares she owns. Now she cannot receive payment without reducing her deforestation. If she complies, she will generate more additional forest cover under full enrollment (4 hectares versus 0 hectares). However, due to its more demanding contract terms, full enrollment may also reduce compliance.
The researchers test these predictions by conducting a randomized controlled trial in the state of Chiapas, Mexico. They compare a full-enrollment treatment group to a control group of landowners who are offered a “partial-enrollment” PES contract that provides them the flexibility to enroll only some of their land. The partial-enrollment provision is the standard PES structure; it is used in Mexico’s national Pago por Servicios Ambientales program as well as other major PES programs worldwide, including the Conservation Reserve Program in the US.
Using satellite imagery, the researchers find 5.7 percent less land is deforested annually with full rather than partial enrollment, a 41 percent decline in the deforestation rate. The extra conservation with full enrollment is on parcels that individuals were not planning to enroll if given the choice. The researchers calculate that the full enrollment PES is more than four times as cost-effective as the partial enrollment program.
—Lauri Scherer
The researchers are grateful to Natura y Ecosistemas Mexicanos A.C. (Natura Mexicana), Innovations for Poverty Action Mexico, and Comisión Nacional Forestal (Conafor) for support implementing this project. This project was funded by the King Climate Action Initiative at J-PAL and pre-registered in the American Economic Association trial registry (AEARCTR-0007693). This project received IRB approval from Northwestern University (STU00214258) and Université du Québec en Outaouais (2021-1527).
