Mechanism Design for Biodiversity Conservation in Developing Countries

In this paper the design of a voluntary incentive scheme for the provision of ecosystem services is considered, having in mind the forested areas in developing countries where a governmental agency plans to introduce a set-aside policy. Payments are offered to the landowners to compensate the economic loss for not converting land to agriculture. The information asymmetry between the agency and the landowners on the opportunity cost of conservation gives incentive to the landowners to misreport their own "type". A principal agent analysis is developed, adapted and extended to capture real issues concerning conservation programs in developing countries. We show that the information asymmetry may seriously impact on the optimal scheme performance and, under certain conditions, may lead to pay a compensation even if any additional conservation is induced with respect to that in absence of the scheme. : biodiversity conservation, asymmetric information, mechanism design. : D82, D86, Q57, Q58. I wish to thank my supervisors Bipasa Datta and Paola Valbonesi for helpful discussions. I am also grateful to participants at the 8th International BIOECON Conference "Economic Analysis of Ecology and Biodiversity" and at the Environmental and Resource Economics Seminar, LERNA, Université de Toulouse, for useful comments and suggestions. The usual disclaimer applies. Corresponding address: Dipartimento di Scienze Economiche “Marco Fanno”, University of Padua, Via del Santo 33, 35123, Padova, Italy. Email: [email protected]. Telephone: +390498273848.