The Role of Risk in Targeting Payments for Environmental Services
29 Pages Posted: 4 Nov 2005
Date Written: October 25, 2005
Abstract
This paper discusses the gain in efficiency from including deforestation risk as a targeting criterion in payments for environmental services (PES) programs. We contrast two payment schemes that we simulate using data from Mexican common property forests: a flat payment scheme with a cap on allowable hectares, similar to the program implemented in several countries, and a payment that takes deforestation risk into account. We simulate the latter strategy both with and without a budget constraint. Using observed past deforestation, we find that while risk-targeted payments are far more efficient, flat payments are more egalitarian. We also consider the characteristics of communities receiving payments from both programs. We find that the risk-weighted scheme results in more, though smaller, payments to poor communities, and these payments are more efficient than those to non-poor ejidos. In the flat scheme, payments to poor and non-poor are equal, though they receive less of the budget than in the more efficient program.
Keywords: environmental services, targeting, forest policy, deforestation, Mexico
JEL Classification: Q23, Q28
Suggested Citation: Suggested Citation
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