The Inherent Trade-Off Between the Environmental and Anti-Poverty Goals of Payments for Ecosystem Services (WP-22-20)
Seema JayachandranConservation programs in low-income countries often have dual goals of protecting the environment and reducing poverty. This article discusses the tension between these two goals in payments for ecosystem services (PES) programs. Participants who undertake a pro-environment behavior receive a payment, which can be decomposed into two parts: the amount that compensates them for the cost of changing their behavior and the extra amount that is a “pure transfer” to them. To maximize the program's environmental benefits, a policy maker would like to set the pure transfer component to zero, but the pure transfer is the only part of the payment that increases participants' economic wellbeing. In practice, PES programs pay out some pure transfers, and the extent of the anti-poverty benefits depends on whether the pure transfers are de facto targeted to the poor. Jayachandran lays out these points and then illustrates them with data from a randomized trial of payments for forest protection in Uganda. She provides evidence that the economic gains from participation in PES are indeed larger for those with low costs to fulfill the program's conservation requirements. She also shows that, in this context, poorer eligible households enjoyed more improvement in their economic wellbeing than richer ones did.