The effect of spatial interdependencies on prioritization and payments for environmental services

Abstract

Empirical studies and on-the-ground policies assessing optimal selection of projects in the context of payments for environmental services programs rarely consider spatial proximity of one project to other projects. This occurs despite evidence from theoretical and ecological studies that benefits are often spatially interdependent. This paper develops a flexible construct of “spatial synergy benefits” using the principles of Newtonian gravity similar to efforts in other application areas. This approach is novel to the literature on environmental preservation and, as a systematic method, can account for a wide variety of spatial interdependencies. The empirical setting for the application is farm and forest preservation in Delaware, with a quadratic knapsack algorithm used to select the optimal set of parcels. Application results show that the specific level of the spatial synergy benefit measure does not significantly alter the number of parcels and acreage preserved, but that the composition of the optimal set changes as agglomeration preferences increase. These changes in the optimal targeted set indicate a potential bias in past research on PES selection. Policy makers informed by methods that do not explicitly account for spatial agglomeration preferences often make incorrect investment choices from a cost-effectiveness perspective.