How (Not) to Pay – The Impact of Conditionality Design on the Cost-Effectiveness of Payments for Avoided Deforestation

Posted: 31 Mar 2016

See all articles by Tim Reutemann

Tim Reutemann

UNEP DTU Partnership, DTU Copenhagen

Stefanie Engel

School of Economics and Business Administration

Eliana Pareja

Universidade de Aveiro

Date Written: February 11, 2016

Abstract

Payments for Ecosystem Services (PES) can use many design features. We investigate the impact of payment conditionality types, i.e. different specifications when to pay and when not to pay, for PES on deforestation and agricultural production in a lab-in-the-field experiment. Our experiment also tests variations in contract period and payment volatility. We designed a highly visual simulation game to characterize the decision situation of a cattle rancher in Brazil. The player can expand extensive pasture by deforestation or intensify existing pasture. The model includes both a land and a capital constraint. We applied the game in an economic, framed lab-in-the-field experiment in Tocantins, Brazil. Payments conditional on forest carbon stock lead to slow, but steady deforestation, while payments conditional on forest carbon stock-change suppressed deforestation more strongly. But payments conditional on stock increase cattle production while payments conditional on stock-change have no effect on production. Thus, depending on the level of leakage, either type of conditionality can be more cost-effective in reducing global carbon emissions. Contracts with limited periods lead to strong deforestation after the end of the payment period. Payment volatility had no significant effect.

Keywords: Conditionality; Deforestation; Incentive-Based Instruments; Payments for ecosystem services; PES; Policy Design; REDD

JEL Classification: C93, Q00, Q2

Suggested Citation

Reutemann, Tim and Engel, Stefanie and Pareja, Eliana, How (Not) to Pay – The Impact of Conditionality Design on the Cost-Effectiveness of Payments for Avoided Deforestation (February 11, 2016). Available at SSRN: https://ssrn.com/abstract=2756614 or http://dx.doi.org/10.2139/ssrn.2756614

Tim Reutemann (Contact Author)

UNEP DTU Partnership, DTU Copenhagen ( email )

Stefanie Engel

School of Economics and Business Administration ( email )

Barbarastr. 12
Osnabrueck, 49076
Germany

Eliana Pareja

Universidade de Aveiro ( email )

Rua Associação Humanitária Bombeiros de Aveiro
Aveiro, 3800
Portugal

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