Adverse selection and severe design constraints in PES: A choice experiment in a deforestation hotspot of the Brazilian Cerrado

Incentivising conservation in agricultural frontier regions presents complex challenges for long-term effectiveness. This scoping study investigates the potential and limitations of Payments for Ecosystem Services (PES) to prevent legal deforestation of surplus Legal Reserve (LR) areas in MATOPIBA, a rapidly expanding soybean-producing region in Brazil. Specifically, we examine the feasibility and constraints of different PES designs in high-opportunity-cost agricultural frontiers, discussing under which contextual conditions PES may or may not be a suitable conservation instrument. Using a discrete choice experiment (DCE) with 81 soybean producers who possess native vegetation beyond legal requirements, we estimate willingness-to-accept (WTA) compensation under varying contract attributes—including payment size, permanence requirements, payment structure, and funding institutions. Results from mixed logit and latent class models reveal significant heterogeneity in preferences and motivations. High payments would be needed to engage producers likely to deforest, while low-cost participants often exhibit low ex-ante additionality. The requirement to convert surplus areas into permanent reserves (RPPNs) drastically increases WTA, often exceeding the likely opportunity cost of land. Social influence, especially peer familiarity with PES, significantly reduces compensation demands. Our findings highlight risks of adverse selection, limited permanence, and the illusion of cost-effectiveness when targeting only low-WTA landowners. We conclude that PES programs in agricultural frontier contexts must prioritise careful targeting, behavioural insight, and complementary strategies - such as land acquisition or peer-based outreach - to achieve meaningful outcomes, but may also in the current context not be an adequate conservation instrument.