Payments for Environmental Services: To whom, where, and how much?

In this paper we consider different strategies for implementing a payment for environmental services (PES) program to mitigate deforestation in Mexican common property forests (ejidos). We begin by discussing the policy context within which PES programs find themselves, highlighting other possible interventions to help preserve environmental amenities in Mexico. We then discuss some basic principles of environmental payment schemes, formalizing these into three that we simulate: payment of the opportunity cost for forests at risks; payment for environmental benefits provided by forests at risk; a flat payment scheme with a cap on allowable hectares, similar to the type of program often applied in developing countries; and a program of opportunity cost payments for forest at risk with highest environmental benefit per dollar paid. We find that, of these three, the last is most efficient and the second most egalitarian. We also repeat a simulation of the third scheme using predicted, rather than actual risk, which circumvents the problem of strategic behavior on the part of recipient communities but introduces some error into the targeting process. Finally, we consider the characteristics of communities that receive payments from the most efficient program, finding that larger and more remote ejidos receive the lion's share of the budget, but that payments to them are not necessarily more efficient. This scheme also gives more, though smaller on a per capita basis, payments to poor and indigenous communities, where they are more efficient than those to non-poor and non-indigenous ejidos.