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The Cost-Effectiveness of Conservation Payments

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  • Simpson, R. David
  • Ferraro, Paul

Abstract

Intact ecosystems provide important global services. Many valuable ecosystems are located in low-income countries in which citizens are not in a position to provide global public goods gratis. To address this problem, international conservation and development donors have been making substantial investments in habitat conservation. Among the more common conservation schemes are interventions aimed at encouraging commercial activities that produce ecosystem services as joint products. We argue that it would be more cost-effective to pay for conservation performance directly. We use a simple yet general model to establish three conclusions. First, the overall cost of conservation is least when direct payments are employed. Second, the donor will generally find direct payments more cost-effective. Third, the preferences of donors and eco-entrepreneurs are opposed: when the donor prefers direct payments, the eco-entrepreneur prefers indirect subsidies. There are a number of reasons why direct incentive programs may be difficult to implement. We argue, however, that any approach to conservation will face similar challenges. Furthermore, we demonstrate with an empirical example that direct payment initiatives can offer spectacular cost-savings relative to less direct approaches. We therefore believe that continued experimentation with direct conservation incentives in the developing world is warranted and will prove successful.

Suggested Citation

  • Simpson, R. David & Ferraro, Paul, 2000. "The Cost-Effectiveness of Conservation Payments," Discussion Papers dp-00-31, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-00-31
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    References listed on IDEAS

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    1. Ferraro, Paul J., 2000. "Global Habitat Protection: Limitations of Development Interventions and the Role for a Permanent International Habitat Reserve," Working Papers 179545, Cornell University, Department of Applied Economics and Management.
    2. Chomitz, Kenneth M & Kumari, Kanta, 1998. "The Domestic Benefits of Tropical Forests: A Critical Review," World Bank Research Observer, World Bank Group, vol. 13(1), pages 13-35, February.
    3. P.M.S. Jones, 1994. "The Value of Diversity," Energy & Environment, , vol. 5(3), pages 215-225, September.
    4. Don Fullerton & Ann Wolverton, 1997. "The Case for a Two-Part Instrument: Presumptive Tax and Environmental Subsidy," NBER Working Papers 5993, National Bureau of Economic Research, Inc.
    5. Lawrence H. Goulder & Ian W.H. Parry & Dallas Burtraw, 1997. "Revenue-Raising versus Other Approaches to Environmental Protection: The Critical Significance of Preexisting Tax Distortions," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 708-731, Winter.
    6. Heal, G., 1998. "Markets and Sustainability," Papers 98-02, Columbia - Graduate School of Business.
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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