"Contracting for Ecological Infrastructure in the Panama Canal Watershed: Ex Ante Assessment of Benefits, Costs, and Capital Market Failures”

Havlicek Memorial Fund Seminar
Friday, October 19 – 10:30am-12:00pm

Room 250A, Agricultural Administration Building

Vic Adamowicz, Vice Dean in the Faculty of Agricultural, Life and Environmental Sciences, and a Distinguished Professor in the Department of Resource Economics and Environmental Sociology at the University of Alberta, will present “Contracting for Ecological Infrastructure in the Panama Canal Watershed: Ex Ante Assessment of Benefits, Costs, and Capital Market Failures” on Friday, October 19^th from 10:30am-12:00pm in room 250A, Agricultural Administration (2120 Fyffe Road, Columbus, OH 43210). The event is open to the public. RSVPs are not required.

Abstract: Coasian contracts are an appropriate market correction instrument if a substantial portion of an ecosystem’s benefits are external to a landholder’s production decision – such contracts are often called “payment for ecosystem services” or PES. However, if capital and ecosystem service (ES) markets are both missing, then direct payments inflate measure of ES scarcity. Credit-based payment for ecosystem service (CB-PES) programs have been proposed as a lower cost approach to securing ES, but few studies have investigated credit-based payment vehicles. This is true despite the increased interest in microfinance and related alternatives to direct payments for ES supply. We conduct an ex-ante benefit-cost assessment for ecological infrastructure contracts for land use change that are offered by the Panama Canal Authority, an organization that can capitalize dry-season water flow and avoided sedimentation (Adamowicz et al, under review). As a component of this assessment, we use stated preference interviews with 711 landholders in the Panama Canal Watershed to compare landholder preferences for direct payments and CB-PES. Respondents’ participation decisions were modeled using a two-stage decision model; participation in the market and willingness to accept (WTA) conditional on participation. Landholders with bank accounts, our proxy for current access to capital markets, are more likely to be a participant in the ES market with direct payments. For most agroforestry systems, landholders have lower WTA values for CB-PES relative to PES. These results show that jointly addressing the credit constraint with the environmental externality may lower the costs of securing ecosystem services.