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Conservation Payments under Uncertainty

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Listed:
  • Stefanie Engel
  • Charles Palmer
  • Luca Taschini
  • Simon Urech

Abstract

The decision of whether to retain forest or convert to another land use is affected by uncertainty over future land use returns. This paper examines the design of conservation payments to landowners under uncertainty. Payments are either indexed to the returns from deforestation (agriculture), or to a market value associated with forest nonuse benefits. Payment size depends on the degree of correlation between payments and agricultural returns, and their relative volatility. Market-based payments for reducing emissions from deforestation and degradation (REDD) are simulated for Brazilian soybean growers. Payments indexed to carbon prices are larger than those indexed to international soybean prices

Suggested Citation

  • Stefanie Engel & Charles Palmer & Luca Taschini & Simon Urech, 2015. "Conservation Payments under Uncertainty," Land Economics, University of Wisconsin Press, vol. 91(1), pages 36-56.
  • Handle: RePEc:uwp:landec:v:91:y:2015:i:1:p:36-56
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    References listed on IDEAS

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    1. Pablo C. Benítez & Timo Kuosmanen & Roland Olschewski & G. Cornelis van Kooten, 2006. "Conservation Payments under Risk: A Stochastic Dominance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 1-15.
    2. F. Christian Zinkhan, 1991. "Option Pricing and Timberland's Land-Use Conversion Option," Land Economics, University of Wisconsin Press, vol. 67(3), pages 317-325.
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    4. Schatzki, Todd, 2003. "Options, uncertainty and sunk costs:: an empirical analysis of land use change," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 86-105, July.
    5. Jasmina Behan & Kieran McQuinn & Maurice J. Roche, 2006. "Rural Land Use: Traditional Agriculture or Forestry?," Land Economics, University of Wisconsin Press, vol. 82(1), pages 112-123.
    6. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    7. Bar-Ilan, Avner & Strange, William C., 1996. "Urban Development with Lags," Journal of Urban Economics, Elsevier, vol. 39(1), pages 87-113, January.
    8. 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.
    9. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    10. Dangl, Thomas & Wirl, Franz, 2004. "Investment under uncertainty: calculating the value function when the Bellman equation cannot be solved analytically," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1437-1460, April.
    11. Chomitz, Kenneth M. & Thomas, Timothy S., 2001. "Geographic patterns of land use and land intensity in the Brazilian Amazon," Policy Research Working Paper Series 2687, The World Bank.
    12. Paula Cordero Salas & Brian E. Roe, 2012. "The Role of Cooperation and Reciprocity in Structuring Carbon Sequestration Contracts in Developing Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 411-418.
    13. Flaskerud, George K., 2003. "Brazil'S Soybean Production And Impact," Extension Bulletins 23092, North Dakota State University, Department of Agribusiness and Applied Economics.
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    1. repec:eee:resene:v:49:y:2017:i:c:p:33-47 is not listed on IDEAS
    2. repec:eee:ecoser:v:26:y:2017:i:pb:p:422-430 is not listed on IDEAS
    3. Gren, Ing-Marie & Zeleke, Abenezer Aklilu, 2016. "Policy design for forest carbon sequestration: A review of the literature," Forest Policy and Economics, Elsevier, vol. 70(C), pages 128-136.
    4. Nizalov, Denys & Thornsbury, Suzanne & Loveridge, Scott & Woods, Mollie & Zadorozhna, Olha, 2016. "Security of property rights and transition in land use," Journal of Comparative Economics, Elsevier, vol. 44(1), pages 76-91.
    5. repec:eee:ecoser:v:16:y:2015:i:c:p:1-12 is not listed on IDEAS
    6. repec:eee:ejores:v:267:y:2018:i:1:p:368-380 is not listed on IDEAS
    7. Palmer, Charles & Taschini, Luca & Laing, Timothy, 2017. "Getting more ‘carbon bang’ for your ‘buck’ in Acre State, Brazil," Ecological Economics, Elsevier, vol. 142(C), pages 214-227.
    8. repec:eee:ecolec:v:140:y:2017:i:c:p:241-250 is not listed on IDEAS
    9. Di Corato, Luca & Dosi, Cesare & Moretto, Michele, 2015. "Multidimensional auctions for long-term procurement contracts under the threat of early exit: the case of conservation auctions," Working Paper Series 2015:6, Swedish University of Agricultural Sciences, Department Economics.
    10. Reutemann, Tim & Engel, Stefanie & Pareja, Eliana, 2016. "How (not) to pay — Field experimental evidence on the design of REDD+ payments," Ecological Economics, Elsevier, vol. 129(C), pages 220-229.
    11. repec:gam:jsusta:v:9:y:2017:i:9:p:1608-:d:111412 is not listed on IDEAS

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