Compensation and cost of conservation payments for biodiversity

Slash-and-burn agriculture in poor tropical countries is one of the main causes of deforestation, leading to environmental costs and to potential externality effects on lowland agricultural productivity. Under innovative environmental policies, direct conservation payments to farmers are starting to be implemented to induce them to abandon slash-and-burn agriculture as well as the use of forest resources altogether. However, appropriate compensation levels are often difficult to get at. Using a stochastic payment card format in a case study in Madagascar, it is estimated that farmers would abandon slash-and-burn agriculture and forest use for median annual compensation payments at a lower bound of around 85$ and 177$ per household respectively. As expected, the econometric analysis shows that there exists a systematic relation between poverty and the required compensation for forgone land use. While poorer households depend relatively more on forest products, they accept a lower amount to abandon slashand-burn agriculture and forest use. Better educated and older households require higher payments.