Conservation and welfare: Toward a reconciliation of theory and facts

The establishment of protected areas is a widespread practice designed to curb environmental degradation. However, it is often criticized as limiting the expansion of agriculture and natural resources extraction, especially in poor regions. Others maintain that conservation can increase welfare if the opportunity cost of conservation is less than the benefit generated by alternative uses of the land. In the economic literature, theoretical results on the relation between conservation and welfare are generally pessimistic while recent empirical studies showed a positive relation. The main objective of this paper is to reconcile theoretical and empirical results. We develop and test a theory explaining the relation between conservation, ecotourism and welfare. In our model, conservation allows to develop an ecotouristic sector which generates an alternative source of income at the local level. The theoretical results are tested on Nepalese data. We find that protection associated with ecotourism development affects positively local welfare. Our theoretical results are consistent with the empirical literature.