Horne iii ere world congress by lizzy2008

VIEWS: 4 PAGES: 14

									                  Use of choice experiments in the design of biodiversity
                                   conservation policy

                                            Paula Horne
                                  Finnish Forest Research Institute

Abstract:
It has become more popular to use incentive-based voluntary policy instruments in the conservation
of biodiversity. These instruments have been claimed to have potential of lower costs and wider
legitimacy. This study used choice experiments to examine citizens' and forest owners' preferences
for biodiversity conservation in forest
management, the level of acceptance of potential policy instruments, and the financial issues in both
the demand and supply side. The respondents were clustered on the basis of factor analysis to
examine heterogeneity in preferences. Empirical data were collected by postal surveys to Finnish
forest owners and citizens. The results showed that the preferences for conservation policy differed
between the attitude clusters. Policy instruments based on voluntariness of forest owners were
preferred to a more authoritarian approach in biodiversity conservation. There seem to be potential
for cost savings but in this early stage it stays unrealized. The results are used in the evaluation of
pilot projects on incentive-based policy instruments under the METSO biodiversity action
programme in Finland.

Key words: biodiversity conservation, policy instruments, forests, non-
industrial private forest owners (JEL: Q51, Q57, Q58)
1. INTRODUCTION

Forests produce a multitude of environmental services alongside consumable goods like timber and
berries. Some of these goods and especially services are public goods. Provision of public goods on
private lands is not necessarily at a socially optimal level, as private decision makers might not
internalise them into their objective function. The conservation of native species or biodiversity
provides an example of typical public goods, the benefit of which cannot be exclusive to the private
forest owner.

In public policy planning , environmental quality and nature values are placed abreast with the cost
of providing them, let it be an opportunity cost of development, direct cost of production or indirect
cost of damage. Preserving forest area for nature values has an opportunity cost in terms of timber
revenue. However, the cost of conservation is not the only attribute the benefits of biodiversity have
trade-offs with. The social impacts of conservation policy need to be considered. Economically and
socially sustainable conservation policy can be achieved only if the policy instruments are effective
and legitimate to the general public as well as the forest owners (Manning et al. 1999). It has
become more popular world-wide to use incentive-based voluntary policy instruments for
safeguarding biodiversity in private lands (e.g. Frank & Müller 2003, Shogren et al. 2003, Tikka
2003). These instruments have been wished and claimed to have potential of lower costs and wider
legitimacy than the customary statutory instruments.

This study used choice experiments to examine citizens' and forest owners' preferences for
biodiversity conservation in forest management, the level of acceptance of potential policy
instruments, and the financial issues in both the demand and supply side. The welfare impacts of a
nature conservation policy on different segments of the society were studied by clustering the
respondents by their attitudes to nature conservation issues. The social and economic preferences
and implications of setting forest aside for conservation purposes would depend on the individual
characteristics, preferences and situation of each citizen and forest owner. The purpose of the study
was to determine whether the use of incentive based policy mechanisms would increase the level of
acceptance of nature conservation in Southern Finland and how the welfare of different segments of
society would be affected by the policy change. On the citizens' or demand side, the level of
biodiversity conservation was placed abreast with implementation policy and its socio-economic
costs, including employment losses, in a choice experiment framework. On the forest owners' or
supply side, we examined the factors that affect the acceptability of voluntary contracts of
biodiversity conservation in non-industrial private forests and the amount of compensation required.


2 BIODIVERSITY CONSERVATION POLICY IN FINLAND

In Finland about three quarters of the land area is covered by forests (Finnish statistical … 2004).
Over a third of the threatened species are forest organisms. Forest management over centuries has
changed the forest composition in such a way that many species dependent e.g. on decayed wood or
old-growth forests are now threatened (Rassi et al. 2001). Currently 7,5 per cent of the productive1
forestland is protected in Finland. Most of the protected areas are located in the northern part of the
country where 17 per cent of the forest area is protected by law. However, most of the habitats of
endangered species are located in Southern Finland where 1,8 per cent of forestland is protected.
(Virkkala et al. 2000, Ruuhijärvi et al. 2000).



1   Forest grows more than 1 m3/year/hectare.
Conventionally, nature conservation policy has been implemented through buying to the state the
areas that have ecological value. Along with the recent trend in international biodiversity
governance, there has been now a shift toward incentive based policy mechanisms that are based on
voluntariness of forest owners.

In 2002, the Finnish state accepted a programme for action to protect biodiversity in forests in
southern Finland, the western parts of the province of Oulu and the south-western region of the
province of Lapland. The programme is called Forest Biodiversity Programme for Southern Finland
(METSO). The programme is a 17-point plan of action that aims at improving protection of habitats
that are crucial for forested landscapes and threatened species, creating new areas and networks for
biodiversity maintenance, and increasing the efficiency of conservation in present protection sites.
Some of the actions are based on biodiversity preservation measures currently at use, others are
partially or completely new. In order to improve funding for the METSO actions the potential for a
forest conservation foundation based on voluntary contributions will be investigated. Funding from
such a foundation would be used for actions to protect forest biodiversity. For biodiversity
safeguarding in private forests, METSO introduces pilot projects that use incentive based
mechanisms relaying on the voluntarism of forest owners. The pilot projects test different types of
compensating mechanisms. The compensation or payment for conservation contract is tied either
only to the potential of forest revenue, or to that potential and to the conservation value (i.e.
decayed wood, large aspen trees and such environmentally valuable elements have "a price tag"). In
many cases, the sites that are most valuable for biodiversity conservation are not necessarily the
most productive forestry areas (lots of tree species not used commercially, lots of decayed wood,
long hauling distance, etc.). The new policy measures are hoped to bring about positive social and
economic impacts through improvements in the acceptability of conservation among forest owners,
and the cost effectiveness both for the state and for forest owners as a group. These new instruments
will be monitored and evaluated by the end of 2006.

According to earlier studies, Finnish citizens would prefer to have more conservation areas.
However, also the socio-economic impacts of conservation policy should be accepted. The
compensation paid to forest owners for conservation would be covered through tax revenues by the
general public. The results of valuation studies indicate that Finnish citizens would be willing to pay
for conservation programmes, at least hypothetically (Lehtonen et al. 2003, Siikamäki 2001).
Nature conservation may also have adverse impacts on the employment. Even thou the forest sector
employs only 4 per cent of the total labour force in Finland, in some regions its share of offered
employment rises above 10 per cent (Finnish Statistical ... 2000).

Most of the citizens and naturally of the forest owners are also concerned with justice toward forest
owners and their sovereignty. Non-industrial private forest (NIPF) owners own 61 per cent of
forests in Finland, and almost 75 per cent in the southern part of the country. Nearly 20 per cent of
Finnish households own a forest holding. The economic and social implications of forest protection
befall especially upon this sector of society. A clear majority of citizens are in favour of full
compensation to the forest owners for lost revenues and possible costs of nature conservation
action, and support forest owners' sovereignty in forest management decisions (Horne et al. 2004).



2 Methods and Data
2.1 Choice Experiment Method

The choice experiments offer a wide range of information on benefit trade-offs even between
qualitative and quantitative attributes (Adamowicz et al. 1994). The method also allows flexibility
in examining welfare impacts of different policy scenarios. The method involves respondents being
presented with a number of choice sets consisting of two or more alternatives from which he/she is
to choose their preferred alternative. Each alternative is described by various levels of a set of
attributes, which are influenced by the chosen forest management strategy. Attributes can be
quantitative or qualitative in nature, and the ability to combine these two types of data is one of the
main benefits of the choice experiment approach.

Choice experiments are based on random utility theory and produce a wide range of information on
trade-offs among the benefits provided by the choices (Adamowicz et al. 1997, 1998). The theory is
based on probabilistic choice, where individuals are assumed to choose a single alternative, which
maximises their utility from a set of available alternatives. Probabilistic choice models rely on
random utility theory which describes the utility of each alternative (U) as the sum of systematic
and error components. The systematic component, V, is a vector of individual and alternative
specific attributes that are observable. The presence of an error component makes the choice
random, and it includes all the impacts and factors affecting the choice that are not observable by
the researcher (Louviere et al., 2000).

Random utility theory posits that an individual n, chooses alternative, i, from the choice set, Cn, if
the indirect utility of i is greater than that of any other choice j. The following equation identifies
this notion:

U in  U jn  Vin   in  V jin   jn     j  i; i, j  Cn .                    (1)

Random utility theory describes the probability with which an alternative is chosen given its
systematic and error components. The probability of individual n choosing an alternative i is the
same as the probability that the utility of alternative i is greater than the utility of any other
alternative of the choice set. Thus:

P (i )  P (Vin   in  V jn   jn )     j  i; i, j  Cn .                     (2)

The conditional logit model is the most commonly used method in the analysis of multi-attribute
choices. Assuming that the error components have an IID Gumbel distribution (Ben-Akiva and
Lerman, 1985, p.104), the probability of choosing i is:
          expVin
P (i )           .                                                                       (3)
          expVjn
            j

The model is estimated using maximum likelihood estimation procedures and assumes a linear-in-
parameters functional form for the systematic portion of the conditional indirect utility function
(Ben-Akiva and Lerman, 1985).

Observing the choices made and the association of different attribute levels to monetary changes
allows the estimation of changes in economic welfare. The compensating surplus (CS) for the case
we examine can be written as:
         V jn  V jn
            0     1

CS                   ,                                                                            (4)
             

where  is the marginal utility of money, and V jn and V jn are the initial and new states of the
                                                 0       1


resource. The initial state, or status quo, thus provides the basis for economic welfare analysis
(Carson et al., 1994). Typically the marginal utility of money is derived from the parameter
estimated in the choice model for some monetary attribute.

Choice experiment data was analysed using multinomial logit model with software programme
Limdep8.0.


2.2 Data Gathering

Supply side; forest owners
The data on forest owners were collected using a postal survey to 3 000 Finnish private forest
owners in spring 2003. The sample was randomly collected from The Central Union of Agricultural
Producers and Forest Owners' (MTK) and Forest Management Associations' register of landowners
with more than five hectares of forest and who pay the full forestry levy. The response rate was 42
%.

There were six series of survey questionnaires, each containing six choice sets. Each choice set
included two contract alternatives for forest conservation that were described using five attributes,
and a status quo alternative in which the level of conservation in private forests would not be
increased. Respondents were instructed to choose their preferred alternative in each choice set.

The five attributes describing the alternative contract alternatives were: who initiated the
conservation contract; the restrictions on forest use; the compensation per hectare annually; the
duration of contract; and, the cancellation policy (Table 1).

The first option of the initiator was that the forest owner herself or himself is active in initiating the
conservation contract. Conventionally, environmental organisations, the second option, have been
active in initiating conservation actions, while the forest organisations, the third, have dealt with
timber trading and extension of silvicultural practises. The new policy programme suggests the
formation of a conservation trust that would be funded by voluntary payments for biodiversity
conservation purposes, which was given as a fourth option of an initiator.

About a third of forest owners leave some small patches of forests unmanaged, so the small patches
of forest protected would be an attractive option for many forest owners for restrictions. The second
option, a nature management plan would involve a voluntary plan that safeguards and enhances
nature values in the forests but also allows harvesting. The third option for restrictions on forest use
was a total ban on silvicultural practises. The most restrictive management option was a creation of
a strict nature reserve that might impose restrictions on other uses as well as forestry.

Table 1 Attributes used in the study and their levels.

Attribute                             Levels
Initiator of the contract             Forest owner him/herself
                                    Forest organisation
                                    Environmental organisation
                                    Conservation trust
Restrictions on forest use          Small patches of forest protected
                                    Nature management plan
                                    No silvicultural practises allowed
                                    Strict nature reserve
Compensation/ha/year                0 euros
                                    70 euros
                                    140 euros
                                    210 euros
                                    280 euros
                                    350 euros
Duration of contract                5 years
                                    10 years
                                    30 years
                                    100 years
Cancellation policy                 Forest owner can cancel
                                    New owner can cancel
                                    Binds also new owner

The amount of compensation proposed varied between 0 to 350 euros. Using the word payment
rather than compensation might be more appropriate as the forest owner is rather paid for
biodiversity services rather than compensated for lost timber revenue. However, in the following
welfare analysis, we are calculating how much compensation would be required to keep forest
owner's welfare intact.

The levels of the duration of contract ranged from five years and to one hundred years that would
already cover in average three generations of forest owners.

The levels of cancellation policy varied in terms of who is allowed to cancel the contract. One level
was that the forest owner who enters into a contract might cancel it and, naturally, return the
compensation due. Alternatively, the contract would bind the forest owner but a new owner would
be allowed to cancel the contract. Lastly, the contract would also bind the new forest owner.

Demand side; citizens
The data on citizens were collected by a mail survey in the early summer of 2002. Simple random
sample of 3000 was selected by Population Register Centre to represent 15-74 year old Finnish
citizens. The response rate was 45 per cent.

The questionnaire consisted of questions on the respondent's background information, their nature
activities, knowledge about biodiversity and attitudes towards compensations paid to forest owners
for costs of conservation. The respondents were also presented with two sets of attitude statements
concerning forest use and management in general and particularly in privately owned forests. A
five-step Likert-scale was used for response alternatives. In the last part of the questionnaire the
respondents were asked both directly and in a choice experiment setting about their opinions on the
extent of nature conservation areas, policy instruments used in conservation and some socio-
economic effects of conservation.

Table 2 Attributes used in the choice experiment.

 Attributes                                         Levels
 Percentage of protected forest area in Southern    Present 1,8% (only in the status
 Finland                                            quo)
                                                    1,25x present (2,3%)
                                                    1,5x present (2,7%)
                                                    2x present (3,6 %)
                                                    4x present (7,2%)
 Percentage of protected forest area in Northern    Present 17%
 Finland                                            1,25x present (21%)
                                                    1,55x present (25%)
                                                    2x present (34%)
 Number of threatened species                       Calculated from previous
 Loss of jobs                                       -5000
                                                    -2000
                                                    No change
                                                    +1000
 Annual cost to households over 10 year period      No change
                                                    60 mk       10 €
                                                    180 mk      30 €
                                                    600 mk     100 €
                                                    900 mk     150 €
                                                    1800 mk 300 €
 Policy instrument                                  Land acquisition
                                                    Conservation contracts
                                                    Counselling

Choice experiment method was used to investigate public preferences of policy instruments and
socio-economic impacts of conservation. The respondents were presented with a situation where
they had to consider the trade-offs between conservation percentages and socio-economic impacts.
The six attributes used along with the different levels are listed in Table 2. A separate glossary
explained the attributes and their levels to the respondents and also gave instructions for answering.
Three of the attributes were ecological in nature: conservation percentage in southern Finland,
conservation percentage in northern Finland and a calculated number of threatened species for each
conservation percentage. The number of threatened species correlated strongly with the
conservation percentages, and therefore only one or the other was used in the model at a time.

Attributes representing socio-economic impacts were effects of conservation on employment and
the amount of annual extra costs per household for the next 10 years caused by increased taxation.
The three optional policy instruments were land acquisition, conservation contracts and planning
and extention. As the policy instrument was a qualitative attribute it was effects coded in the
analysis, the base value being land acquisition. The glossary explained the three policy instruments
in terms of their effects on the landowner and the certainty of conservation status.
Land acquisition is where the landowner sells the land voluntarily or it is redeemed by the State.
The value of the land is paid in full at the time of acquisition and it is thus an expensive measure.
The landowner loses his/her rights to the land and the proprietary rights are transferred to the State.
Land acquisition secures the nature conservation status.

Conservation contract is a procedure where the landowner sets aside land for conservational
purposes and receives a compensation for the lost income. If a forest owner incurs a significant
financial loss from maintaining special characteristics of a habitat of special importance he/she is
entitled to environmental support under the Act of the Financing of Sustainable Forestry. The
contract is proposed to be drawn up for 30 years. Even though the contract restricts forest
utilisation, the owner maintains his/her proprietary rights. The conservation status is secure for the
duration of the contract.

Extension and planning means drawing up a forest management plan for an individual forestry
holding, that instructs the forest owner in management and conservation of ecologically important
sites. The management plan is free for the forest owner and maintains his/her right of final decision
in management practises. However, the fulfilment of conservation goals is unsure.

In the choice experiment the respondents were presented with six choice situations, in each of
which they were to choose the most preferable out of three given alternatives. One of the
alternatives in each choice set represented the present situation, the status quo, and the two others
were alternatives where conservation percentage was increased. Since conservation percentage and
the number of threatened species are correlated, in this case the number of threatened species is
omitted from the model.


2.3 Heterogeneity of Preferences for Nature Conservation

Many earlier empirical valuation studies ignore the taste variations across the respondents in the
sample. If the quantity of environmental good demanded varies significantly between individuals
this preference heterogeneity might lead to misinterpretation of results. A growing number of recent
studies have accounted explicitly for heterogeneity in preferences through the use of econometric
techniques (e.g. Siikamäki 2001, Adamowicz et al. 1997).

When considering the social acceptability of additional conservation, it should be recognized that
the aggregate values tell nothing about the distribution of preferences or welfare among citizens. An
average citizen hardly exists, and in order to identify potential opposition and supporters it helps to
classify the respondents according to their values and relation to forest environment. As the focus of
this study was to examine the distribution of welfare impacts among different segments of society,
the welfare impact was calculated separately for each segment instead of using statistical
procedures to incorporate the heterogeneity in a model.

We used attitude statements on nature conservation and forestry issues as a basis for examining the
heterogeneity of preferences in the citizen sample. Values explain people's behaviour and attitudes
in general, and they can also be expected to be demonstrated in their relationship with nature and
their preferences and choices related to forests. Respondents were asked to indicate their agreement
with the 17 statements on a five-step Likert scale. Factors represent attitude dimensions on the basis
of which the respondents were grouped using K-means clustering. Respondents were clustered into
anthropocentric (46 percent of the respondents) or ecocentric segments (46 percent of the
respondents) (see Horne et al. 2004).

3 Results

3.1 Estimation of Multinomial Logit Models

Supply side, forest owners
About one third of the respondents always selected the status quo alternative in their choices. These
respondents never chose a contract alternative given whichever contract terms. Horne (in press)
reports the results of two models; one using all the observations in the data set collected, and one
from where the respondents who had always chosen the status quo had been omitted. The study
revealed the potential of lowering the cost of biodiversity protection when using voluntary
instruments: the average compensation demand was remarkably lower for the latter data. The
statistical results of the multinomial logit model for those how accepted a conservation contract
given the contract terms is shown in Table 3. The co-efficients mark the effect of that parameter on
the probability of an alternative to be chosen.

The status quo alternative was assigned the alternative specific constant (ASC). The positive and
statistically significant ASC indicates strong preferences for no additional conservation. The
compensation parameter estimate is also positive, indicating that the higher the compensation in the
alternative, the higher the probability of it being chosen.

All the other variables were effects coded. At least one of the levels was statistically significant for
all the variables. “Forest owner” was the most preferred alternative for the initiator of the contract,
while the “environmental organisations” were least favoured. Respondents were willing to conserve
small patches of forest or manage their forest according to a nature management plan, rather than
take more restrictive measures. Short contract periods were preferred to longer ones, with the
practically permanent one hundred years being a highly unpopular choice. Respondents also
preferred flexibility in decision, opting to have a possibility of withdrawing from the contract at
their will.

Table 3 Estimated parameters of a multinomial logit model (and standard errors) for forest owner
data.

Variable
                                                   Status quo
                                                   respondents excluded

Alternative specific constant for the status quo   0.7756***
                                                   (0.0967)

Compensation                                       0.0047***
                                                   (0.0004)

Initiator Forest owner                             0.6294***
                                                   (0.0722)

Initiator Forest organisation                      -0.0752
                                                   (0.0791)
Initiator Environmental organisation            -0.289***
                                                (0.0796)

Initiator Conservation trust                    -0.2650
                                                -

Restriction on use Small patches                0.545***
                   conserved
                                                (0.0729)

Restriction on use Nature management            0.3693**
                   plan
                                                (0.0830)

Restriction on use No silviculture              -0.2440**
                                                (0.0787)

Restriction on use Strict nature reserve        -0.6706
                                                -

Duration of contract 5 years                    0.6432***
                                                (0.077)

Duration of contract 10 years                   0.3328***
                                                (0.0721)

Duration of contract 30 years                   0.0474
                                                (0.0756)

Duration of contract 100 years                  -1.0234
                                                -

Cancellation policy Present owner can           0.3080***
                    cancel
                                                (0.0594)

Cancellation policy New owner can               0.1319**
                    cancel
                                                (0.061)

Cancellation policy Binds also new              -0.4400
                    owner
                                                -

Log-likelihood                                  -1555.72
ρ2



***significant at p < 0.01; **significant at p < 0.05, * significant at p < 0.10


Demand side; citizens
One out of four respondents chose the scenario describing the present situation in all choice
situations, and about a third always preferred one of the scenarios with increased conservation. The
rest chose both options alternately. Most of the respondents always choosing the status quo scenario
belonged to the anthropocentric group whereas the majority of those choosing a scenario with
increased conservation were ecocentrics.
Multinomial logit models were used to model preferences for nature conservation by attitude groups
(Table 4). The alternative specific constant in the model describes the tendency to choose the
present 'no additional conservation' -option. Its coefficient reflects the relative utility of the status
quo to any additional conservation regime. This constant clearly reflects the attitude differences
between the groups: for both the constant was significant but negative in one and positive for the
other. The positive constant in the anthropocentric group reflects a high probability to choose the
'no additional conservation'- alternative. Among the ecocentric group this option was unpopular as
indicated by the negative co-efficient. The difference between the groups was most pronounced in
attitudes towards conservation in southern Finland. An increase in the conservation percentage
resulted in a decrease in acceptability in the anthropocentric group and an increase among the
ecocentrics. Both groups had a similar view as to the increased conservation in northern Finland: a
higher conservation percentage decreased the probability to choose the scenario. It must be noted,
though, that in the open-ended questions almost 70 percent of the respondents set the conservation
percentage in northern Finland at a maximum of 20 percent. Since the proposed increase amounted
to more than this in all scenarios (except status quo) the results do not show whether a smaller
increase would be acceptable.

Table 4 Table 3 Estimated parameters of a multinomial logit model (and standard errors) for
citizen data.


Variable                                     Antropocentric     Ecocentric
Alternative specific constant (status quo)   0.6187***          -0.5290***
                                             (0.1310)           (0.1118)
Tax                                          0.0025***          0.0492*
                                             (0.0005)           (0.0200)
Southern Finland forest                      -0.0468*           -0.0129*
                                             (0.0236)           (0.0062)
Northern Finland forest                      -0.0198*           0.0003***
                                             (0.0074)           (0.00002)
Jobs lost                                    0.0002***          -0.0020***
                                             (0.00002)          (0.0004)
Policy instrument: Contract                  0.1607**           0.0401
                                             (0.0619)           (0.0503)
Policy instrument: Counselling               0.0889*            0.0087
                                             (0.0996)           (0.0553)
Policy instrument: Land acquisition          -0.2496            -0.0488
                                             -                  -
Log-likelihood                               -1483.5            -1874.047
ρ2                                           0.1873             0.0787



Impacts of expanded nature conservation on employment and taxes were considered as important
and the co-efficients were statistically significant. For the alternatives where employment was
decreased or taxes were increased the probability to be chosen decreased significantly in both
groups. Attitudes towards policy instruments differed notably between the two groups. The
ecocentrics were rather indifferent as to the policy instrument used whereas among the
anthropocentric group conservation contracts and planning and extension were preferred and land
acquisition highly was unpopular.
3.3 Welfare Analysis

In designing biodiversity conservation policy, it would be interesting to know how legitimate
alternative policy instruments would be, and what would be their cost. The use a choice experiment
with models for different segments allows us flexibility to compare alternative scenarios by their
impact on different segments of society. Welfare impacts of a policy change can be estimated in
monetary terms using the co-efficients of the estimated models. This is done by comparing the
situation before and after the policy change. In this study we focussed on the effects of different
policy instruments.

Let us built a policy scenario, where the percentage of protected area would be 4,2 per cent in
Southern Finland, which is more than double the area currently protected. . Additionally, for
simplicity in presentation, assume no employment losses and no additional protection in Northern
Finland. How much would the demand side be willing to pay for the scenario while their welfare
would still remain at the original level.? If the conservation contract was used as the policy
instrument, the sum equals an average of 17.50 € increase in taxes per household annually for the
next 10 years. The 10-year annual payments would equal a 142 € lump sum payment (converted to
present value using 4% interest rate).

However, it must be noted that some respondents want the percentage of the protected area
increased while others do not. The welfare of respondents would decrease due to increased taxation
collected to cover the compensations paid to the forest owners but the welfare from increased
conservation would increase the welfare of others despite the costs. In the base scenario welfare
would decrease in the anthropocentric group by 270 €, and increase in the ecocentric group by 226
€

If, instead of contracts, land acquisition would be used as the policy instrument to increase
conservation the average welfare would decrease from the present level by 100 €. In the
anthropocentric group the decrease would be 434 € and in the ecocentric group 181 € on average.
As the use of contracts seems to be a preferable option in the demand side, we can make a rough
estimate of how much forest could be protected with contracts given the compensation requirement
on the supply side.

The base scenario was selected to have the forest owner as the initiator of the contract, the contract
binding both a new and the present forest owners, larger areas of the property was set aside and the
duration of contract for 10 years. In this base scenario the impact on forest owners welfare is -105 €
per hectare annually when using data with respondents accepting contracts. So at least this amount
should be paid to a forest owner on average as compensation for biodiversity conservation services
to hold his or her welfare constant.

With every Finnish household contributing 142 €, the aggregate sum would come up to 338 million
€. With an average annual payment of 138 € paid to forest owners as a lump sum in the beginning
of the contract period, the aggregate sum would cover about 320 000 hectares that rise the
percentage over the 4,2 percentage. Naturally, the transaction costs should be included to the cost
which would lower the hectares achieved. Even though citizens in average would remain at the
same welfare level, the antropocentrics would loose, while the ecocentrics would gain. Among the
forest owners, those who are not interested in protection would not meet any compulsory measures,
while those interested would receive a compensation to keep them at the initial welfare level.
DISCUSSION

There is a pressure to increase nature conservation area in Southern Finland. The new trend in
conservation policy is to use incentive based mechanisms such as voluntary contracts with full
compensation. With the conservation contracts, the forest owner will agree to set aside a designated
area for a terminate period, and he or she will receive a compensation for the conservation values.
The focus of the study was to examine the impact of the choice of policy instrument on welfare
impacts on different segments of society.

The results reveal that the biodiversity protection in Finnish forests is a widely accepted goal in
forest policy among the citizens. However, the implications of the conservation policy are of major
importance to the respondents. While the respondents in general were clearly in favour of
biodiversity conservation in private forestland, they considered potential socio-economic impacts
important as well. Policy instruments based on voluntariness of forest owners like extension and
contracts were preferred to a more authoritarian approach of land acquisition. Use of voluntary
contracts seems to have potential for cost savings but in this early stage it has remained unrealized.

Use of a welfare analysis based on a choice experiment results gives more information on
preferences on policy choice than a referendum with simple no or yes answers. In welfare analysis
we can obtain information on the intensity of preferences, not simply whether the option is
preferable or not. Examination of welfare distribution is also available. The results are used in the
evaluation of pilot projects on incentive-based policy instruments under the METSO biodiversity
action programme in Finland.



LITERATURE

Adamowicz, W., Boxall, P., Williams & M., Louviere, J. 1998. Stated preference approaches for
measuring passive use values: Choice experiments versus contingent valuation. American. Journal
of Agricultural Economics 80: 64–75.

Adamowicz, W.L., Swait, J., Boxall, P.C., Louviere, J. & Williams, M. 1997. Perceptions versus
objective measures of environmental quality in combined revealed & stated preference models of
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