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

See all articles by Stefanie Engel

Stefanie Engel

ETH Zürich - Institute vor Environmental Decisions (IED)

Charles Palmer

London School of Economics & Political Science (LSE)

Luca Taschini

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment; University of Verona - Department of Economics

Simon Urech

ETH Zürich

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

Engel, Stefanie and Palmer, Charles and Taschini, Luca and Urech, Simon, Conservation Payments under Uncertainty (November 29, 2013). 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. Available at SSRN: https://ssrn.com/abstract=1973449 or http://dx.doi.org/10.2139/ssrn.1973449

Stefanie Engel

ETH Zürich - Institute vor Environmental Decisions (IED) ( email )

Weinbergstrasse 35
Zurich, 8092
Switzerland

Charles Palmer

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Luca Taschini (Contact Author)

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

University of Verona - Department of Economics ( email )

Via Cantarane 24
Verona, Verona 37129
Italy

Simon Urech

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

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