Voluntary agreements in protecting privately owned forests in Finland — To buy or to lease?

Abstract

A voluntary conservation approach may reveal environmentally minded landowners who are willing to protect their lands with a compensation that is lower than the market price based compensation. Consequently, voluntary conservation programs may induce lower costs than traditional obligatory programs, such as a land taking. We compared the costs accrued from land purchasing with those from temporal land leasing. The costs included both direct costs, such as fees of land acquisition and compensation payments in land leasing, and transaction costs. We used a data set from a Finnish pilot program called Trading in Natural Values (TNV). In this new practice landowners and the authority that represents the Finnish government sign a fixed-term contract. According to these contracts the forest owners produce biodiversity services on their lands and receive a compensation payment. We developed a framework where land purchasing and leasing can be treated equivalently in terms of duration of time, so that their costs can be compared consistently. Land purchasing and leasing yielded quite similar cost levels. This indicates that the competitive bidding process in TNV has not worked properly.