‘Liquidity constraints and deforestation: the limitations of payments for ecosystem services’
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.
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Jayachandran (2013) found suggestive evidence that facilitated access to credit can induce contract take-up and thus deter forest owners from cutting trees to meet emergency needs.
“The author found suggestive evidence that facilitated access to credit can induce contract take-up and thus deter forest owners from cutting trees to meet emergency needs.”
From The Effect of Rural Credit on Deforestation: Evidence from the Brazilian Amazon (2020) · cites this paper as Jayachandran (2013)
Jayachandran (2013) finds suggestive evidence that facilitated access to credit can induce contract take-up and thus deter forest owners from cutting trees to meet emergency needs.
“The author finds suggestive evidence that facilitated access to credit can induce contract take-up and thus deter forest owners from cutting trees to meet emergency needs.”
From The Effect of Rural Credit on Deforestation: Evidence from the Brazilian Amazon (2020) · cites this paper as Jayachandran (2013)
Cites
Designing payments for environmental services in theory and practice: An overview of the issues
Engel, S., Pagiola, S., & Wunder, S. (2008) · Ecological Economics · doi:10.1016/j.ecolecon.2008.03.011 · Cited by 2,466 · see citing works
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The Effect of Rural Credit on Deforestation: Evidence from the Brazilian Amazon
Assunção, J., Gandour, C., Rocha, R., & Rocha, R. (2020) · The Economic Journal · doi:10.1093/ej/uez060 · Cited by 174 · see citing works
The Economics of Tropical Deforestation
Balboni, C., Berman, A., Burgess, R., & Olken, B. A. (2023) · Annual Review of Economics · doi:10.1146/annurev-economics-090622-024705 · Cited by 111 · see citing works
- Authors
- Jayachandran, S.
- Affiliations
- Northwestern University (US)
- Corresponding author
- Jayachandran, Seema
- ORCID
- Jayachandran, Seema
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 2013-05-01
- Volume
- 103
- Issue
- 3
- Pages
- 309-313
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W2010658937
- Cited by
- 81
- References
- 1
- Citations by year
- 2026: 1 · 2025: 9 · 2024: 8 · 2023: 7 · 2022: 7 · 2021: 5 · 2020: 4 · 2019: 4 · 2018: 6 · 2017: 16 · 2016: 6 · 2015: 7 · 2014: 1
- FWCI
- 3.26
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- American Economic Review (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Physical Sciences › Environmental Science › Global and Planetary Change › Conservation, Biodiversity, and Resource Management
- Physical Sciences › Environmental Science › Global and Planetary Change › Forest Management and Policy
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Socioeconomics of Resources and Conservation
- Keywords
- payments for ecosystem services, deforestation, liquidity constraints, credit constraints, opportunity cost, forest owners, forest conservation, net present value, environmental policy, Uganda
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