How Smarter Incentives Could Help Save Forests—and Support Farmers

Clearing forests to plant crops makes good business sense in the short term for many farmers in tropical regions, where millions of people rely on healthy forests for food, fuel, and income. What if those farmers had compelling incentives to keep trees standing – without sacrificing their livelihoods? A Stanford team is developing new strategies aimed at doing that, and empowering governments, businesses, and nonprofits to help. Their early findings suggest effective tools may include contracts that pay farmers in proportion to the amount of forest they conserve and platforms that enable price transparency and data-sharing between farmers and buyers.

“This is about creating win-win solutions – approaches that are practical for farmers and effective for conservation,” said co-principal investigator Irene Lo, an assistant professor of management science and engineering at the Stanford School of Engineering. “We’re finding that relatively simple changes to existing incentive structures can make a big difference.”

Rethinking incentives

Traditional incentive programs, referred to as payment of ecosystem services (PES), typically require that all forest on a farmer’s land remain untouched in exchange for compensation. It’s an approach that often falls short, according to Lo and her colleagues. Many farmers find the terms too demanding and opt out entirely.

"One of the most important priorities in nature conservation is to find ways to encourage landowners to conserve the biodiversity on their lands,” said project co-principal investigator Jim Leape, co-director of the Stanford Center for Ocean Solutions. “This research provides crucial insights into how to fashion incentives that work.”

Supported by the Stanford Woods Institute for the Environment’s Environmental Venture Projects program, Lo and other Stanford researchers have instead designed PES contracts that scale payments based on how much forest farmers conserve – a more simple, flexible approach that could significantly increase participation, according to the team’s analyses.

“Conditional contracts sound good in theory, but they’re often too stringent,” Lo said. “By offering payments that are proportional to conservation, we can encourage more farmers to engage and still achieve meaningful environmental benefits.”