Practical Alternatives to Estimate Opportunity Costs of Forest Conservation

Numerous studies have shown the merits of targeting the costs of conservation besides environmental benefits and aligning payments for ecosystem services with incurred costs. However, cost-effective and precise estimation of site specific opportunity costs is a major challenge. In this paper we test two approaches to estimate opportunity costs of conservation: One approach derives opportunity costs from annual land rents, and the other models regresses opportunity costs on easily obtainable and difficult to manipulate spatial and socio-economic independent variables such as soil quality. None of these approaches appeared to estimate opportunity costs sufficiently well. But since this judgment is based on how well the estimates compare to the reference opportunity costs, which were computed from farm budgets, we also considered potential flaws in the reference data and tested their plausibility. The tests confirmed the plausibility of data. Based on the results presented in this paper none of the two cost estimation approaches can be recommended for practical application in conservation programs. Yet, further research is necessary to confirm these findings giving special attention to the techniques that are applied to deliver reference point data on opportunity costs.Resource /Energy Economics and Policy,

Opportunity Costs as a Determinant of Participation in Payments for Ecosystem Service Schemes

Landholders are generally assumed to be willing to participate in payments for ecosystem service (PES) schemes if the offered payment exceeds the opportunity cost of participation. The calculation of opportunity costs is often based on historic financial data such as net returns of the formerly practiced land use. Reliable estimates of opportunity costs are required especially in flexible, cost-aligned payment schemes with differentiated payments at the farm scale. We question whether opportunity cost estimates that do not consider personal landholder characteristics such as risk considerations, information access and non-monetary personal preferences (e.g. for traditional land use practices) are sufficient to explain a landholder's decision to enrol land in PES. To test these assumptions, a PES adoption model was developed for hypothetical adoption decisions by 178 landholders in Costa Rica. The model explained up to 73.5% (Nagelkerkes pseudo R2) of adoption variance. The results confirm that adoption is not determined by financial costs alone. Trust in state institutions, for example, was highly significant. The results call for more integrated methods of opportunity cost estimation such as inverse auctions. Their strength lies, among others, in that all adoption determinants are potentially expressed in the landholder's bid.Resource /Energy Economics and Policy,

Beyond adoption: the welfare effects of farmer innovation in rural Ghana

With numerous challenges hindering smallholders’ adoption of externally developed technologies, it is often argued that farmer innovation can play an essential role in rural livelihoods. Yet a rigorous assessment of the impact of farmer innovation is lacking. We address this issue by analyzing the effect of farmer innovation on household welfare, measured by income, consumption expenditure, and food security. Using household survey data from northern Ghana and applying endogenous switching regression, we find that farmer innovation significantly increases household income and consumption expenditure, and reduces food insecurity. However, we find that the positive productivity and income effects of farmer innovation do not significantly translate into nutritious diet, measured by household dietary diversity. Overall, our results show positive and significant welfare effects of farmer innovation, hence, support increasing arguments on the need to promote farmer innovation as a complement to externally promoted technologies in food security and poverty reduction efforts

Opportunity Costs as a Determinant of Participation in Payments for Ecosystem Service Schemes

Landholders are generally assumed to be willing to participate in payments for ecosystem service (PES) schemes if the offered payment exceeds the opportunity cost of participation. The calculation of opportunity costs is often based on historic financial data such as net returns of the formerly practiced land use. Reliable estimates of opportunity costs are required especially in flexible, cost-aligned payment schemes with differentiated payments at the farm scale. We question whether opportunity cost estimates that do not consider personal landholder characteristics such as risk considerations, information access and non-monetary personal preferences (e.g. for traditional land use practices) are sufficient to explain a landholder's decision to enrol land in PES. To test these assumptions, a PES adoption model was developed for hypothetical adoption decisions by 178 landholders in Costa Rica. The model explained up to 73.5% (Nagelkerkes pseudo R2) of adoption variance. The results confirm that adoption is not determined by financial costs alone. Trust in state institutions, for example, was highly significant. The results call for more integrated methods of opportunity cost estimation such as inverse auctions. Their strength lies, among others, in that all adoption determinants are potentially expressed in the landholder's bid

The determinants of compliance with environmental tax: Behavioural study motivated by the case of Indonesia

Motivated by the case of Indonesia, this behavioural study applies theoretical and experimental approaches to observe the determinants of compliance with environmental tax. The study is expected to contribute to the environmental policy literature by examining the impact of financial reward and bribery in combination, beside other conventional enforcement factors such as tax rate, audits and fines. While theoretical analysis finds that compliance will decrease with tax rate and increase with audit, fine, financial reward and the price of a bribe, the results of the experiment indicate that the impact of each factor varies according to the presence of bribery. Despite the differences, both approaches show that bribery encourages evasion as the tax rate increases and curbs the positive impact of financial reward in enhancing compliance

Practical Alternatives to Estimate Opportunity Costs of Forest Conservation

Numerous studies have shown the merits of targeting the costs of conservation besides environmental benefits and aligning payments for ecosystem services with incurred costs. However, cost-effective and precise estimation of site specific opportunity costs is a major challenge. In this paper we test two approaches to estimate opportunity costs of conservation: One approach derives opportunity costs from annual land rents, and the other models regresses opportunity costs on easily obtainable and difficult to manipulate spatial and socio-economic independent variables such as soil quality. None of these approaches appeared to estimate opportunity costs sufficiently well. But since this judgment is based on how well the estimates compare to the reference opportunity costs, which were computed from farm budgets, we also considered potential flaws in the reference data and tested their plausibility. The tests confirmed the plausibility of data. Based on the results presented in this paper none of the two cost estimation approaches can be recommended for practical application in conservation programs. Yet, further research is necessary to confirm these findings giving special attention to the techniques that are applied to deliver reference point data on opportunity costs