The welfare effects of environmental conservation policy: Evidence from Ecuador

The welfare effects of environmental conservation policy are ambiguous and debated. In particular, there is contention surrounding the effects that common conservation policy tools, such as the establishment of protected areas, have on the welfare of those living nearby. While simple theoretical analyses have suggested that a negative relationship exists between conservation and economic welfare, recent empirical investigations have identified a number of cases where a positive relationship may exist. Divergence between theoretical and empirical results has led to the development of a new theoretical model to explain the relationship between conservation and welfare. The model suggests that a Ushaped relationship exists between conservation effort and optimal welfare, based on the trade-off between the opportunity costs of conservation and the benefits it generates. The model's hypotheses were found to be consistent with empirical evidence in Nepal. This thesis will build on the growing literature investigating the welfare implications of conservation policy, using data from Ecuador to replicate testing of the U-shaped hypothesis. Furthermore, it will extend the literature by incorporating data on Ecuador's Payments for Ecosystems Services (PES) program to empirically test the local welfare effects of a broader set of conservation policies in the context of the U-shaped theoretical model.