1. Getting What You Paid For
Paul J. Ferraro
Department of Economics
Andrew Young School of Policy Studies
Georgia State University
Getting What You Paid For
The Economics of Conservation Investments
15 July 2002
Society for Conservation Biology Meetings
Canterbury, England

2. Indirect Conservation
Conservation by Distraction
Redirect capital and labor away from activities that degrade ecosystems
agricultural intensification
alternative employment
Valorization of Intact Ecosystems
Encourage commercial activities that produce ecosystem services as joint output
eco-tourism
biodiversity prospecting
NTFP extraction

3. Direct Conservation Pay for conservation performance directly
Conservation Contracting in US and EU
Conservation Reserve Program
Wetlands Reserve Program
- Leasing of American Somoa National Park
Pay for conservation performance directly
Host-country and international actors make periodic, conditional payments to individuals or groups that supply services of ecological value (intact ecosystem, targeted wildlife).
NGO Habitat Incentive Programs
Costa Rica
Guatemala
El Salvador
Pakistan
Madagascar

4. Evaluative Criteria Effectiveness Efficiency Equity Flexibility
Indirect Conservation
Effectiveness
Efficiency
Equity
Flexibility
Direct Conservation

5. Efficiency
Conservation payments generally achieve a given level of ecosystem protection at the least cost to the conservation donor (and society).
Conrad and Ferraro 2002; Ferraro and Simpson 2002
Efficiency is desirable in that it implies that the environmental objective is achieved at least cost (or equivalently, generating the most environmental benefits on a given budget). Maximizing benefits per dollar expended.

6. Madagascar Rain Forest
Efficiency Example
Madagascar Rain Forest
Forest Management
Aquatic Species Management
Bee-keeping (Apiculture)
Bee-keeping
ForestNectarHoney
Apiculture Profits 
Protection of Forest
Project was aimed at helping residents acquire semi-modern aquaculture boxes and market honey as ‘eco-friendly’ to receive a price premium on the market. We did a simulation using data on honey production, agricultural returns, timber returns. Compare investments aimed at helping residents acquire bee boxes (or achieve higher output price) versus investments in conservation payments ($x/ha/yr).

7. Ranomafana National Park
ICO Budget = $3.724 million for payments (+$196,000 for administration)
Protect 80% of forest using direct payment versus 12% using indirect support of capital acquisition.
About $3.9 million were invested for conservation and development activities around Ranomafana National Park. Assume 5% of actual outside investment in the Ranomafana area were used for administration (we’ll examine this assumption shortly). What are the conservation and development outcomes that could be achieved with $3.7 million if one were to invest the money in helping residents acquire more productive bee boxes or if one were to pay directly for forest protection and allow residents to conduct bee-keeping if it is privately profitable to do so? Note that this analysis assumes that one takes the $3.7 million and puts it in a trust fund and makes payments forever (i.e., $3.7 million is the present value of an infinite stream of investments in either indirect or direct interventions from this point forward).
Increase rural resident income 100% under direct payment versus 44% increase under indirect subsidy.

8. Adminstrative Costs Ranomafana National Park
< 2% of budget  Rural residents
55% to outside overhead and Tech Asst
U.S. CREP  < 10% administrative
Canada PCP  ~25% administrative
Costa Rica ESP < 20% administrative
Very little of $3.9 million invested in Ranomafana went to residents around park. Majority went to expatriate institutional overhead and technical assistance. The rest went to capital (vehicles, buildings) and host-country national technical expertise. In contrast, one quarter or less of the budget in conservation payment programs goes to administrative costs and the rest goes to the payments themselves (there is some uncertainty in estimating these costs because of accounting procedures but these figures are in the ball park).

9. Final Points
Conservation payments create clear incentives and allow practitioners to focus their efforts and achieve their objectives at the correct temporal and spatial scales. Under plausible circumstances, payments are more efficient.
Problems associated with conservation payments are significant but no more so than the problems associated with indirect interventions.

10. Conclusion
Conservation payment initiatives are neither a magic bullet nor an appropriate intervention for every site.
They do, however, deserve the attention of scholars, practitioners and donors working to protect biodiversity globally.