This study combines hydrological modeling with applied micro-econometric techniques to value a complex ecosystem service: drought mitigation provided by tropical forested watersheds to agrarian communities. Spatial variation in current baseflow allows estimation of drought mitigation values as the marginal profit accruing to agricultural households. The paper shows that this uncommon focus on producer (not consumer) surplus measures is appropriate for valuation as long as markets for commodities related to the environmental services are complete. For the typical household, the estimated marginal profit is positive, validating the central hypothesis that baseflow makes positive contributions to agricultural profits. There is some evidence, however, that increased watershed protection will increase profits through greater baseflow only in watersheds with a unique mix of physio-graphic and climatic features. The paper evaluates and provides some support for the hypothesis, put forward by hydrological science and the Indonesian Government, that protected watersheds can supply latent and unrecognized ecosystem services to local people.

Privatization of public water utilities is increasingly being viewed as a strategic solution to the observed inefficiency of the water sector in developing countries. However the link between private ownership and efficiency is unclear in the water sector, given the monopolistic nature of the service and the need for public regulation. This study poses the question whether public sector reforms could improve the operational efficiency of water utilities as an alternative to privatization.

Using Data Envelopment Analysis we find that neither the decentralization of the responsibility for water operations to the municipal level nor the establishment of an autonomous regulator had a positive impact on the efficiency of Mexican water utilities. We conclude that the enacted reforms should have been combined with reforms that introduce competition and reduce the informational asymmetries in the urban water sector.

This article offers an account of the economics of the environment. I sketch the subject's motivation and scope, and try to identify what we know and what we don't as yet know about matters of concern. This demands brazen selection, and I haven't avoided it: for the most part, the article explores the interface of rural poverty and the environmental resource-base in poor countries. A contrast is drawn between geographically localized resources and the global commons. The role of property rights, both private and collective, and their implied resource allocation mechanisms are studied. Criteria for social cost–benefit analysis of projects and policies are derived, and their link with the concept of net national product is drawn.

In this article, local institutions for forest conservation and management are analysed. The discussion is based on data from 37 villages and 180 households randomly sampled from a protected area in Rajasthan, India. Local management institutions are described, factors affecting inter-village differences in management institutions and collective action are analysed in a logit model, and the impact of institutions and other variables on common resource dependency and forest outcomes is tested using instrumental variable regression. Village population size has a positive effect and prior institutional experience a negative effect on the probability of collective action. It is concluded that efforts at improving forest management should not be confined to the poorest farmers. Large landowners are heavily involved in degrading use practises, especially when resources have good market potential. Local management institutions play a positive role in the area, but their impact appears insufficient to safeguard forests and commons from continued degradation. Conservation policies should target win–win options through interventions aimed at improving technologies for private and common lands as well as institutional changes.

This paper uses panel analyses to estimate relationships for agricultural planted area and beef cattle numbers at the state level in Mexico during the period 1970–85, in order to determine the main factors affecting forest land conversion. Of the key policy variables, maize and fertilizer prices appear to be the main influences on the expansion of planted area, whereas beef prices and credit disbursement influence cattle numbers. Population growth also affects both livestock and agricultural activities, and income per capita is positively correlated with cattle expansion. These estimated relationships are used to examine the effects both of agricultural and livestock sectoral policy changes and of trade liberalization in Mexico resulting from the North American Free Trade Agreement (NAFTA). To avoid any unintended impacts of NAFTA on deforestation, it may be necessary for Mexico to make complementary investments in land improvements, especially for existing cultivation on rainfed land.

This study explores three-way linkage between weather, agricultural performance and internal migration in India at the state and district level using census data. The estimations are based on a two-stage least squares model using panel data. The elasticity of the inter-state out-migration rate with respect to per capita net state domestic agricultural product is − 0.775, indicating that a decline in the value of agricultural output related to weather variations results in an increase in out-migration rate. The crop-wise analysis shows that a 1 per cent decline in rice (wheat) yield leads to a nearly 2 per cent (1 per cent) increase in the rate of out-migration from a state. The district-level analysis shows larger magnitudes of estimated change in in-migration rates to relative changes in crop yields. However, the district-level analysis using two-period panel data constructed from a single census provides relatively less robust results compared to the state-level analysis owing to the associated data limitations.

The sustainability of natural resource use is influenced by population pressure, but this exercises a much less critical impact than the overall policy framework. In Colombia, various agricultural and other policies whose effect is to constrain the poor's access to land encourage environmental degradation. A case is made in favour of the new land reform process that Colombia is launching.

Mangrove ecosystems provide a wide range of market and non-market benefits to coastal communities in the developing world, yet they remain undervalued and overexploited in most regions where they are found. This paper analyzes the use and value of mangroves in Kosrae, Micronesia, where the population is largely dependent on the swamps for fuelwood and other ecosystem services, such as erosion control, storm protection, and nutrient flows to shoreline fisheries. The results show that mangroves on the island are worth between $666 thousand and $1 million per year (1996 prices) based on the net value of marketable products alone. In addition, household survey data suggest that the local people are willing to pay between $1 million and $1.26 million per year to protect and use mangrove swamps indefinitely. The results thus indicate that the population places some premium on the existence and indirect ecosystem services of mangroves, over and above the direct use values. Moreover, respondents generally favored—and were willing to pay more for—a tax system designed to manage and preserve the mangroves' direct and indirect services over a permit system focused only the allocation of direct use over time. Valuation analyses using revealed preference and contingent valuation methods lead to additional conclusions regarding the distribution of benefits, with poor households deriving more direct benefits from—but willing to pay less to protect—mangrove ecosystems.

We examine the use of carbon taxes to reduce emissions of CO2 in China. To do so, we develop a dynamic computable general equilibrium (CGE) model of the Chinese economy. In addition to accounting for the effects of population growth, capital accumulation, technological change, and changing patterns of demand, we also incorporate into our model elements of the dual nature of China's economy where both plan and market institutions exist side by side. We conduct simulations in which carbon emissions are reduced by 5, 10, and 15 per cent from our baseline. After initial declines, in all of our simulations GDP and consumption rapidly exceed baseline levels as the revenue neutral carbon tax serves to transfer income from consumers to producers and then into increased investment. Although subject to a number of caveats, we find potential for what is in some sense a 'double dividend', a decrease in emissions of CO2 and a long run increase in GDP and consumption.

Water market reforms are being promoted by international organisations, such as the World Bank, and pursued within many developing countries. Actual experiences with water markets are limited and the opinions regarding the beneficial or detrimental impacts diverse. It is therefore crucial to learn from the few functioning markets. Some of the longest operating, and most mature markets in the world, are to be found in Southeastern Australia. This paper examines the outcome of water trade in Southeastern Australia and combined with US and Chilean experiences outlines some lessons for the introduction of markets in developing countries.

Poorer countries are generally believed to be more vulnerable to climate change than richer countries because poorer countries are more exposed and have less adaptive capacity. This suggests that, in principle, there are two ways of reducing vulnerability to climate change: economic growth and greenhouse gas emission reduction. Using a complex climate change impact model, in which development is an important determinant of vulnerability, the hypothesis is tested whether development aid is more effective in reducing impacts than is emission abatement. The hypothesis is barely rejected for Asia but strongly accepted for Latin America and, particularly, Africa. The explanation for the difference is that development (aid) reduces vulnerabilities in some sectors (infectious diseases, water resources, agriculture) but increases vulnerabilities in others (cardiovascular diseases, energy consumption). However, climate change impacts are much higher in Latin America and Africa than in Asia, so that money spent on emission reduction for the sake of avoiding impacts in developing countries is better spent on vulnerability reduction in those countries. His last big project in a long career, Jan Feenstra managed the Netherlands Climate Change Assistance Programme through which the Dutch Government sponsors climate change research in developing countries. He hated how climate change detracted from what he considered to be the real issues. This paper is dedicated to his memory.

Using a dynamic model of the control of an infectious disease, we derive the conditions under which eradication will be optimal. When eradication is feasible, the optimal program requires either a low vaccination rate or eradication. A high vaccination rate is never optimal. Under special conditions, the results are especially stark: the optimal policy is either not to vaccinate at all or to eradicate. Our analysis yields a cost–benefit rule for eradication, which we apply to the current initiative to eradicate polio.

This paper assesses how tenure reform in China's collective forest sector affects Chinese farmer households’ perception of tenure security and propensity to invest in their forestland. A large database consisting of information from 3,180 households in eight provinces from south to north is used to explore factors correlated with more strongly perceived tenure security and determinants of forest-related investment. The study adds to the limited research testing whether there is endogenous causality between investment and tenure security in forestland, and finds that investment was not undertaken to enhance tenure security. In addition, the data allow for differentiation between perceived tenure security and contracted use and transferability rights. Overall, stronger contracted rights were found to affect investment. China's forest tenure reform – where individual households can manage forestland, empowered by legal certification and stronger contract rights – has thus enhanced tenure security and encouraged forest investment.

A contingent valuation method (CVM) survey to determine foreign and resident willingness to pay (WTP) for return visits to two different Costa Rican national parks was administered in 1995. WTP values were estimated for future entrance fees associated with proposed improvements to infrastructure and services in the Poas Volcano and the Manuel Antonio parks. Resulting logistic CVM models were statistically robust and mean WTP for entrance fees differed among the parks and were considerably higher than current fees. Results indicate that even in a developing country setting, the CVM is a useful tool to help determine park entrance fees in spite of the following methodological limitations which are recommended for further study: the need to include potential park visitors in survey samples; the lack of detailed information framing and contingent scenarios for park related WTP questions; and the threat of cultural-strategic biases when surveying residents of a developing country.

The main objective of the paper is to estimate the costs of groundwater over exploitation and examine the costs and benefits from groundwater replenishing mechanisms in different ecological contexts. Using the public good and externalities framework, the study shows how groundwater exploitation in Andhra Pradesh, India is resulting in economic losses to individual farmers apart from ecological degradation. It is argued that policies towards strengthening the resource base (replenishment mechanisms) and equitable distribution of the resource (property rights) would be beneficial, economically as well as ecologically.

The analysis is in favour of investment in replenishment mechanisms such as irrigation tanks and percolation tanks. The situation of over extraction and the resultant environmental degradation is a consequence of lack of appropriate and adequate policies (policy failure) for managing the subsurface water resources. Hitherto, groundwater policies (subsidized credit, power, etc.) are in the nature of encouraging private initiatives in groundwater development. It is argued that community-based investments in replenishment as well as extraction of groundwater would make better economic as well as ecological sense.

This paper uses data for 134 countries for the period 1960–2010 to document an energy ladder that nations ascend as their economies develop. On average, economic development results in an overall substitution from the use of biomass to energy sourced from fossil fuels, and then increasingly towards nuclear power and certain low-carbon modern renewables such as wind power. The process results in the carbon intensity of energy evolving in an inverse-U manner as per capita incomes increase. Fossil fuel-poor countries climb more quickly to the low-carbon upper rungs of the national-level energy ladder and so typically experience larger reductions in the carbon intensity of energy as they develop. Leapfrogging to low-carbon energy sources on the upper rungs of the national-level energy ladder is one route via which developing countries can reduce the magnitudes of their expected upswings in carbon dioxide emissions.

The potential importance of natural resources for the livelihood of poor rural households has long been recognized but seldom quantified and analyzed. In this paper, we apply poverty and inequality measures to national and community level data sets to explore the impacts of resource extraction on rural welfare. Our findings suggest that natural resource extraction reduces both income inequality and poverty. Results from a simulation analysis at the community level indicate that poverty may be reduced, in the short-run, by increases in the price of a non-timber forest product.

Developing countries are vulnerable to the adverse effects of climate change, yet there is disagreement about what they should do to protect themselves from anticipated damages. In particular, it is unclear what the optimal balance is between investments in traditional productive capital (which increases output but is vulnerable to climate change), and investments in adaptive capital (which is unproductive in the absence of climate change but ‘climate-proofs’ vulnerable capital). We develop a model of investment in adaptive and productive capital stocks, and show that while it is unlikely that the optimal strategy involves no adaptation, the scale and composition of optimal investments depends on empirical context. Application of our model to sub-Saharan Africa suggests, however, that in most contingencies it will be optimal to grow the adaptive sector more rapidly than the vulnerable sector over the coming decades, although it never exceeds 1 per cent of the economy. Our sensitivity analysis goes well beyond the existing literature in evaluating the robustness of this finding.

Mitigating the harmful effects of development projects and industries (negative environmentalism) is inadequate, especially in resource-dependent economies whose resources are at risk from other forces. While positive environmentalism includes conservation projects, the non-market benefits of such projects are difficult to evaluate. This paper provides and illustrates a method for evaluating the indirect, watershed benefits of a tropical forest, without resorting to survey methods. The conservation of trees prevents a reapportionment from groundwater recharge to runoff that would otherwise occur. The value of the water saved is then valued at the shadow prices obtained from an optimizing model. An illustration of the model shows that watershed conservation projects may have very high payoffs, even before assessing existence values and other forest amenities.