Direct Payments for Environmental Services from Mountain Agriculture in Japan: Evaluating its Effectiveness and Drawing Lessons for Developing Countries

This article evaluates the effectiveness of ex-post targeting of the direct payment program for mountain agriculture in Japan. A regression analysis explaining the entry into the program shows that the farm profitability and the production cost were significant positive and negative factor, respectively, in determining the uptake, while the efforts by local governments were a robust factor in facilitating the enrollment. These findings imply ineffective ex-post targeting and call for the differentiation of the premium, alternative incentives to promote forestation for the un-enrolled fields and additional funds targeted to those prefectures with the low uptake ratio. Lessons drawn from the Japanese experience for effective incentive measures in developing countries include the use of composite indicators in designating eligible areas to avoid the risk of insufficient targeting and the engagement of local governments to facilitate the entry through the reduction of transaction costs among participants.