Payments for Ecosystem Services (PES) programs compensate individuals or communities for undertaking actions that increase or preserve the provision of ecosystem services, such as water purification, flood mitigation, biodiversity conservation, or carbon sequestration. With the potential to deliver effective and efficient environmental protection and to increase income for the rural poor, PES programs are now being widely discussed and promoted by international and governmental organizations, as well as academics. 

Economics provides useful tools in the areas of policy design and impact evaluation.  This presentation apply some of these tools to Mexico’s Payments for Hydrological Services (PSA-H) program.  The program pays individual or common property owners to maintain existing forest cover in watersheds with problems of water scarcity.  The program will spend more than US$100 million this year and has a total of over 1 million hectares of land enrolled: it is one of the first large-scale PES programs in Latin America and the largest to take place in a region with significant rates of deforestation.  

Results/Conclusions

The presentation will begin by discussing economically efficient targeting schemes.  It contrasts two payment schemes that are simulated using data from Mexican common property forests: a flat payment scheme with a cap on allowable hectares per enrollee, similar to the program implemented in many countries, and a payment that takes deforestation risk and variability in land productivity into account.  This exercise shows that while risk-targeted payments are far more efficient, capped flat payments are more egalitarian.  In considering the characteristics of communities receiving payments from both programs, the risk-weighted scheme results in more payments to poor communities, and these payments are more efficient than those to the non-poor.  Finally, the results show that the risk of deforestation can be predicted quite precisely with indicators that are easily observable and that cannot be manipulated by the community. 

The second part of the presentation presents results from an on-going assessment of the impact of Mexico’s PSA-H program on deforestation.  It measures the effect of the program on the deforestation rates of enrollees in 2004 and 2005, using two counterfactuals – those communities rejected by the program for geographical reasons, and those enrolled at later dates.   We analyze variation in impact across geographical and socio-economic variables.  In addition, the presentation will show results estimating the displacement of deforestation to unenrolled areas of land.