American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Liquidity Constraints and Deforestation: The Limitations of Payments for Ecosystem Services
American Economic Review
vol. 103,
no. 3, May 2013
(pp. 309–13)
Abstract
A popular environmental policy is to pay forest owners for avoiding deforestation on their land. This is an example of "payments for ecosystem services" (PES). This paper shows that liquidity constraints can limit the effectiveness of PES programs. If an individual would have cut down trees to sell them, his opportunity costs are more front-loaded than the stream of PES income. If credit constrained, he might decline the program even if the net present value (NPV) of the PES income exceeds the NPV of his opportunity costs. I present evidence consistent with this prediction using data on forest owners in Uganda.Citation
Jayachandran, Seema. 2013. "Liquidity Constraints and Deforestation: The Limitations of Payments for Ecosystem Services." American Economic Review, 103 (3): 309–13. DOI: 10.1257/aer.103.3.309Additional Materials
JEL Classification
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- Q23 Renewable Resources and Conservation: Forestry
- Q28 Renewable Resources and Conservation: Government Policy
- Q53 Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q54 Climate; Natural Disasters; Global Warming
- Q58 Environmental Economics: Government Policy