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Conservation Payments under Risk: A Stochastic Dominance Approach

Author

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

Abstract

Conservation payments can be used to preserve forest and agroforest systems. To explain landowners’ land-use decisions and determine appropriate conservation payments, it is necessary to focus on revenue risk. Marginal conditional stochastic dominance rules are used to derive conditions for determining the conservation payments required to guarantee that the environmentally-preferred land use dominates. An empirical application to shaded-coffee protection in the biologically important Chocó region of West-Ecuador shows that conservation payments required for preserving shaded-coffee areas are much higher than those calculated under risk-neutral assumptions. Further, the extant distribution of land has strong impacts on the required payments.

Suggested Citation

  • Pablo Benítez & Timo Kuosmanen & Roland Olschewski & G. Cornelis van Kooten, 2005. "Conservation Payments under Risk: A Stochastic Dominance Approach," Working Papers 2005-14, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
  • Handle: RePEc:rep:wpaper:2005-14
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    File URL: https://web.uvic.ca/~repa/publications/REPA%20working%20papers/WorkingPaper2005-14.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nana, Tian & Lu, Fadian, 2013. "Adaptive management decision of agroforestry under timber price risk," Journal of Forest Economics, Elsevier, vol. 19(2), pages 162-173.
    2. 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.
    3. Knoke, Thomas, 2008. "Mixed forests and finance -- Methodological approaches," Ecological Economics, Elsevier, vol. 65(3), pages 590-601, April.
    4. 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.
    5. De Pinto, Alessandro & Robertson, Richard D. & Obiri, Beatrice Darko, 2013. "Adoption of climate change mitigation practices by risk-averse farmers in the Ashanti Region, Ghana," Ecological Economics, Elsevier, vol. 86(C), pages 47-54.
    6. Kitti, Mitri & Heikkilä, Jaakko & Huhtala, Anni, 2009. "‘Fair’ policies for the coffee trade – protecting people or biodiversity?," Environment and Development Economics, Cambridge University Press, pages 739-758.
    7. Veronesi, Marcella & Reutemann, Tim & Zabel, Astrid & Engel, Stefanie, 2015. "Designing REDD+ schemes when forest users are not forest landowners: Evidence from a survey-based experiment in Kenya," Ecological Economics, Elsevier, vol. 116(C), pages 46-57.
    8. Utkur Djanibekov & Asia Khamzina, 2016. "Stochastic Economic Assessment of Afforestation on Marginal Land in Irrigated Farming System," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 95-117.
    9. Hildebrandt, Patrick & Knoke, Thomas, 2011. "Investment decisions under uncertainty--A methodological review on forest science studies," Forest Policy and Economics, Elsevier, vol. 13(1), pages 1-15, January.
    10. Ian A. MacKenzie & Markus Ohndorf & Charles Palmer, 2010. "Enforcement-proof contracts with moral hazard in precaution: ensuring �permanence� in carbon sequestration," GRI Working Papers 27, Grantham Research Institute on Climate Change and the Environment.
    11. 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.
    12. Knoke, Thomas & Paul, Carola & Härtl, Fabian & Castro, Luz Maria & Calvas, Baltazar & Hildebrandt, Patrick, 2015. "Optimizing agricultural land-use portfolios with scarce data—A non-stochastic model," Ecological Economics, Elsevier, vol. 120(C), pages 250-259.
    13. Catherine M. Chambers & Paul E. Chambers & John R. Crooker & John C. Whitehead, 2008. "Stochastic Dominance, Entropy and Biodiversity Management," Working Papers 08-08, Department of Economics, Appalachian State University.
    14. Ian A. MacKenzie & Markus Ohndorf & Charles Palmer, 2012. "Enforcement-proof contracts with moral hazard in precaution: ensuring 'permanence' in carbon sequestration," Oxford Economic Papers, Oxford University Press, vol. 64(2), pages 350-374, April.
    15. Stefanie Engel & Charles Palmer & Luca Taschini & Simon Urech, 2012. "Cost-effective payments for reducing emissions from deforestation under uncertainty," GRI Working Papers 72, Grantham Research Institute on Climate Change and the Environment.
    16. 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.
    17. 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.
    18. Wan-Yu Liu & Qunwei Wang, 2016. "Optimal pricing of the Taiwan carbon trading market based on a demand–supply model," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 209-242, November.
    19. 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.

    More about this item

    Keywords

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

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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