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Conservation Payments under Risk: A Stochastic Dominance Approach

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Author Info

  • Pablo Benítez
  • Timo Kuosmanen
  • Roland Olschewski
  • G. Cornelis van Kooten

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.

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File URL: https://web.uvic.ca/~repa/publications/REPA%20working%20papers/WorkingPaper2004-05.pdf
File Function: Final version, 2004
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Bibliographic Info

Paper provided by University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group in its series Working Papers with number 2004-05.

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Length: 35 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:rep:wpaper:2004-05

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Related research

Keywords: risk; conservation payments; land allocation; stochastic dominance; agroforest systems; portfolio diversification;

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Cited by:
  1. Kitti, Mitri & Heikkila, Jaakko & Huhtala, Anni, 2006. "Fair policies for the coffee trade - protecting people or biodiversity?," Discussion Papers 11858, MTT Agrifood Research Finland.
  2. Stefanie Engel & Charles Palmer & Luca Taschini & Simon Urech, 2012. "Cost-effective payments for reducing emissions from deforestation under uncertainty," Grantham Research Institute on Climate Change and the Environment Working Papers 72, Grantham Research Institute on Climate Change and the Environment.
  3. Catherine M. Chambers & Paul E. Chambers & John R. Crooker & John C. Whitehead, 2008. "Stochastic Dominance, Entropy and Biodiversity Management," Working Papers 0807, University of Central Missouri, Department of Economics & Finance, revised May 2008.
  4. Marcella Veronesi & Tim Schloendorn & Astrid Zabel & Stefanie Engel, 2012. "Designing Redd+ Schemes When Forest Users Are Not Forest Landowners: Evidence From A Survey-Based Experiment In Kenya," Working Papers 15/2012, University of Verona, Department of Economics.
  5. Engel, Stefanie & Pagiola, Stefano & Wunder, Sven, 2008. "Designing payments for environmental services in theory and practice: An overview of the issues," Ecological Economics, Elsevier, vol. 65(4), pages 663-674, May.
  6. Charles Palmer & Markus Ohndorf & Ian A. MacKenzie, 2009. "Life’s a breach! Ensuring ‘permanence’ in forest carbon sinks under incomplete contract enforcement," CER-ETH Economics working paper series 09/113, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  7. Ian A. MacKenzie & Markus Ohndorf & Charles Palmer, 2010. "Enforcement-proof contracts with moral hazard in precaution: ensuring ‘permanence’ in carbon sequestration," Grantham Research Institute on Climate Change and the Environment Working Papers 27, Grantham Research Institute on Climate Change and the Environment.
  8. Knoke, Thomas & Steinbeis, Otto-Emmanuel & Bösch, Matthias & Román-Cuesta, Rosa María & Burkhardt, Thomas, 2011. "Cost-effective compensation to avoid carbon emissions from forest loss: An approach to consider price-quantity effects and risk-aversion," Ecological Economics, Elsevier, vol. 70(6), pages 1139-1153, April.
  9. Levy, Moshe, 2009. "Almost Stochastic Dominance and stocks for the long run," European Journal of Operational Research, Elsevier, vol. 194(1), pages 250-257, April.

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