Compensation for Biodiversity Conservation

The practice of slash-and-burn agriculture in poor tropical countries is often one of the main causes for deforestation, leading to biodiversity loss and to potential externality effects on lowland agricultural productivity. Under innovative environmental policies, direct conservation payments to farmers have started being implemented to induce them to give up slash-and-burn agriculture as well as the use of forest resources altogether. However, appropriate compensation levels are often difficult to get to. Using a stochastic payment card format in a case study in Madagascar, it is estimated that farmers would give up slash-andburn agriculture for median annual compensation payments at a lower bound of around 85$ per household. The econometric analysis shows that there is a systematic relationship between poverty and the required compensation for forgoing land use. Better educated and older households demand higher payments.