Mechanism Design for Biodiversity Conservation in Developing Countries

In this paper the theory and practical limits of a voluntary incentive program for the conservation of biodiversity are presented. The design of conservation contracts in the context of still forested areas in developing countries is considered. The aim of the governmental agency implementing the conservation program is to induce the landowners to set aside a part of their land from agriculture conversion, compensating them for the resulting profit loss. The optimal contract scheme needs to deal with information asymmetry on the opportunity cost of conservation and reduces the information rents due to the landholder incentive to misreport her "type". I show how information asymmetry can seriously impact on the optimal mechanism design and may lead to contracts by which types cannot be separated and/or landholders may receive some payments even if they are conserving the same extent of land they would have conserved without contract.