Since modification of agricultural production choices in developing countries often provides positive environmental externalities to people in developed countries, payment for environmental services (PES) has become an important topic in the context of economic development and poverty reduction. We consider two broad categories of PES programs, land-diversion programs, where lands are diverted from agriculture to other uses, and working-land programs, where agricultural production activities are modified to achieve environmental objectives. PES programs are generally good for landowners. The distribution of land and land quality is critical in determining poverty impacts. Where ES and agricultural productivity are negatively correlated and the poor own lands of low agricultural quality, they stand to gain from PES programs. Consumers and wage laborers may lose where food supply is inelastic and programs reduce labor demand. Working-land programs may have better distributional effects than diversion programs.
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