Conservation Payments under Uncertainty
Land Economics - Forthcoming
Grantham Research Institute on Climate Change and the Environment Working Paper No. 72
Centre for Climate Change Economics and Policy Working Paper No. 82
34 Pages Posted: 5 Feb 2012 Last revised: 6 Apr 2014
Date Written: November 29, 2013
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 indexed to the returns from forest conversion (agriculture), or to a market value associated with forest non-use benefits. Payment size depends on the dependency structure between the two competing returns and their relative volatility. In simulating payments for reducing emissions from deforestation and degradation (REDD) in Brazil, low correlation and greater volatility are shown to have opposing effects on landowners’ returns from market-based carbon payments.
Keywords: deforestation, land use change, payments, permanence, REDD, uncertainty
JEL Classification: Q23, Q28, Q15
Suggested Citation: Suggested Citation