Environmental and Distributional Impacts of Conservation Targeting Strategies

Resource purchasing funds have become a major tool for environmental protection and resource conservation. These funds use various strategies to target resources for environmental conservation, the choice of which may lead to striking differences in environmental performance. This paper develops an analytical framework to compare the effects of alternative targeting strategies on consumer surplus, producer surplus, and environmental benefits. We demonstrate that ignoring the output price effect of purchasing funds reduces environmental gain from the purchasing fund and, in some cases, may make a purchasing fund counterproductive. A purchasing strategy that targets resources with the highest environmental benefits may be counterproductive even if the price feedback effect is recognized. This strategy, however, will have the smallest impact on output price and overall resource use among all strategies considered and should be favored by consumers and input providers. A strategy that targets low-cost resources will result in the largest reduction in production and the largest output price increase, and should be favored by resource owners. A strategy that targets resources with the highest benefit-to-cost ratio is efficient and provides the largest environmental benefits for a given budget when the output demand is perfectly elastic. This strategy, however, no longer maximizes total environmental benefit for a given budget when output demand is not perfectly elastic, and should not be the most preferred strategy of any group. We argue that the optimal design of targeting criteria must consider the price feedback effect.