Pitfalls in managing conservation funds

Wu, Zilberman, and Babcock (2001) argue that in some cases conservation funds may affect the prices of food and other commodities sufficiently so that resources previously not used for production will start being utilized—or "leakage" occurs. Thus, we may have a paradoxical situation where farmers are paid to reduce utilization or intensity of use on certain lands, creating pressures to bring other lands into intensive production. Under this type of scenario, increased levels of agricultural biodiversity conservation could lead to reduced levels of wild biodiversity conservation. The designer of a conservation fund has to recognize this possibility and also provide incentives against extension of production into wilderness areas. Recent empirical research has indicated the complexity of putting such incentives into place, and the need for measures on both macro- and microlevels (Lee et al., 2001; Angelsen and Kaimowitz, 2001).

The design of agricultural biodiversity conservation activities has to recognize and address potential impacts on food availability. Particularly in remote areas in developing countries, which are largely self-sufficient, any reduction of agricultural production due to conservation activities may have a negative affect on food consumption, at least for some part of the population. Thus, mechanisms may be needed to increase the productivity or value of the land that stays in production and to enable increased conservation without affecting the food security and economic well-being of the local population. However, two strategies which have been adopted for addressing this concern—agricultural intensification and integrated conservation and development projects (ICDPs)—have proven to have major problems in achieving the intended goals of both increasing food security and biodiversity conservation. Experience with these programs has shown the critical necessity of assessing the driving forces of land-use management decisions by local populations and their potential responses to changes in technology, institutions, and policies. (Angelsen and Kaimowitz, 2001; Brandon, 2001).

Wu, Zilberman, and Babcock (2001) also argue that conservation funds may be the dominant resource buyer in the region, and minimizing their cost in acquiring resources could result in monopsonistic pricing strategies. In such cases, resource prices will be lower than if there was competition among buyers' resources for environmental and conservation purposes, and the net affect is that the owner of the resources, who may be small farmers, may be compromised. This indicates the necessity for careful assessment of the potential impacts of purchasing funds, especially in regions where such funds play a dominant role in the local economy.

While market power considerations suggest that it is preferable for resource-purchasing conservation programs to be restricted by size, there may be biological considerations which would require a minimum size of land parcels in order to take advantage of increasing returns to scale in the generation of environmental amenities. As Wu and Boggess (1999) have shown, when the scale of conservation projects is sufficiently small, then an increase in the marginal productivity of conservation is associated with an increase in size. Only when size is beyond a certain threshold will marginal benefits from expansion of the project decline. That suggests a lower bound on scale of conservation projects and indicates that small-scale conservation funds may be most effective by specializing in a small number of sufficiently large projects, rather than spread resources among a large number of small projects.

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