Land Use Policy 63 (2017) 645–658

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Land Use Policy

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The leakage and livelihood impacts of PES contracts:

A targeting experiment in Malawi夽
B. Kelsey Jack a,b,∗ , Elsa Cardona Santos c
a
Tufts University, United States
b
NBER, United States
c
University of Bonn, Germany

a r t i c l e i n f o a b s t r a c t

Article history: Most evaluations of payments for environmental services programs focus on immediate environmental
Received 31 July 2014 impacts, and do not measure the effects on socioeconomic outcomes or on other land use activities (leak-
Received in revised form 27 February 2016 age). Efficient allocation of land use contracts, through auctions for example, may help mitigate concerns
Accepted 28 March 2016
about adverse livelihood or leakage effects. This study reports on a field experiment that varied the allo-
cation of afforestation contracts to smallholder farmers in Malawi. Households were randomly assigned
to participate in an auction or in a lottery for the contracts, which provided three years of payment based
on tree survival outcomes. Households that did not receive a contract as a result of the lottery form a
pure comparison group. The results show evidence for within-farm leakage for households that received
a contract at random, in the form of additional land clearing. Randomly contracted households are also
more likely to report household labor shortages. These effects are mitigated to some degree when con-
tracts are assigned through an auction. Together, the results point to leakage and livelihood impacts from
payments for environmental services that are often overlooked in standard evaluations, but which may
be reduced through improvements in contract targeting.
© 2016 Elsevier Ltd. All rights reserved.

1. Introduction sequestration in its member countries, including Malawi. While

Payments for environmental services (PES) provides compen-
sation to landholders who adopt or maintain environmentally
friendly land use practices.1 While similar agri-environmental
schemes have been in place in developed countries for some time,
PES, and payments for carbon offsets in particular, are a grow-
ing source of public sector expenditures in developing countries.
For example, the Common Market for Eastern and Southern Africa
(COMESA) recently launched a carbon fund expected to raise 500
million USD for investment in carbon emissions mitigation and
夽 The International Growth Centre and the World Agroforestry Centre (ICRAF)
provided financial support. Thanks to ICRAF, Innovations for Poverty Action, Niall
Keleher and Stanley Mvula for facilitating data collection and to Maha Ashour for
research assistance. Useful comments were received from Jen Alix-Garcia and Tobias
WÜnscher and audience members at the 2013 ASSA meetings and the OECD Con-
servation Tenders workshop.
∗ Corresponding author at: Tufts University, United States.
E-mail address: Kelsey.Jack@tufts.edu (B.K. Jack).
1
A number of other authors have offered definitions for PES. For example, Wunder
(2005) defines a PES scheme as a voluntary transaction over a well-defined ecosys-
tem services that is being bought by at least one buyer from at least one seller,
conditional on provision of the service.
numerous interventions in developing countries target smallholder
farmers and claim both environmental and poverty alleviation
impacts from PES programs, little rigorous evidence of the impacts
on participating farmers or on possible spillovers to other land use
outcomes (leakage or slippage) is available (Pagiola et al., 2005;
Zilberman et al., 2008; Pattanayak et al., 2010).2 Leakage may occur
through several different channels, including through reallocation
of agriculture or other environmentally damaging activities from
contracted to uncontracted land under the same ownership or
through the effects of removing land from production on the prices
of land-intensive goods (Alix-Garcia and Wolff, 2014). Both types
of leakage will lower the “additionality” of the PES program, or the
extent to which the program generates environmental gains rela-
tive to a counterfactual of no program. Concerns over additionality
are particularly pervasive in carbon offset programs, particularly
those that are small in scale like most PES schemes (Kerr, 2013).
The effect of allocating contracts to the landholders with the low-
est opportunity cost on leakage and additionality are ambiguous
and likely to depend on the type of landuse being targeted. For
2
Alix-Garcia et al. (2012, 2013) and Uchida et al. (2009) are notable exceptions.

http://dx.doi.org/10.1016/j.landusepol.2016.03.028
0264-8377/© 2016 Elsevier Ltd. All rights reserved.
646 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658
the case of afforestation, which we study, low opportunity cost is
less likely to be associated with low additionality than for avoided
deforestation contracts.
The research follows up on a field experiment carried out in
Malawi to subsidize tree planting on private land for carbon seques-
tration and other environmental services. The analysis consists
of two components, based on the two levels of randomization in
the experiment. In the first component, random assignment of
afforestation contracts among a sub-sample of eligible landholders
facilitates direct comparisons to analyze the impacts on livelihood
and environmental outcomes three years later. Specifically, the
analysis focuses on two key issues for payments for environmen-
tal services. First, is there evidence for within-farm leakage that
undermines the environmental benefits of a PES contract? Second,
are PES contracts good or bad for contracted households? In what
way? The second component of the analysis evaluates whether
these impacts were different for households that received a con-
tract as a result of bidding in an auction. If the auction successfully
targeted the contract to households with the lowest opportunity
cost of contract implementation, then we expect these house-
holds to receive greater surplus from the payments, and therefore
show better livelihood outcomes than households that randomly
receive a contract, who on average have a higher opportunity
cost. One determinant of opportunity cost is likely to be land con-
straints: households with surplus land will be able to undertake the
contracted activities without decreasing land under agriculture, a
source of within-farm leakage. These predicted impacts are a func-
tion of the study setting, where households allocate labor between
farm and non-farm activities to smooth consumption and missing
land markets result in idle land that can be used for tree planting.
The afforestation contracts were allocated in 2008 and offered
annual payments conditional on tree survival (further details on
the original study are described in Jack et al., 2013). Landhold-
ers were required to plant trees on half an acre of land, which is
one-tenth of the average landholding among the study population.
Each year, the contract paid up to one-tenth of average Malawian
household income, based on tree survival. The evaluation of pro-
gram impacts on the environment and livelihoods relies on a survey
implemented at the end of the three-year contract, and uses both
cross-sectional and difference-in-difference (and triple differences,
where appropriate) analysis to measure treatment effects. Of the
536 households surveyed in the baseline, over 90 percent were
reached for the follow up survey. Of these, 433 participated in either
the lottery or the auction, which resulted in the allocation of 176
contracts.
The evaluation of within-farm spillovers and livelihood impacts
on randomly contracted farmers finds clear evidence for the former
and suggestive evidence for the latter. Specifically, households that
randomly received a contract are more likely to clear additional
land, consistent with a substitution of previously unused land for
the land under the tree planting contract. Standard measures of
socioeconomic outcomes, such as food expenditures or assets, are
insignificantly different between the treatment and control groups
using difference-in-difference analysis. However, household labor
allocation does appear to be impacted by the project. The compar-
ison of randomly contracted households with households targeted
through the auction uses a difference in difference strategy (con-
tract vs. no contract, auction vs. lottery) and triple-differences when
baseline and endline measures are available. The two classes of
outcomes – land use spillovers and household labor effects – are
somewhat mitigated if the contracts were allocated according to
auction bids.
The findings relate to a growing program evaluation litera-
ture studying the impacts of payments for environmental services
programs in developing countries (Alix-Garcia et al., 2013; Pfaff
et al., 2008). This paper is most closely related to two studies of
Mexico’s national Payments for Hydrological Services program by
Alix-Garcia and coauthors. In Alix-Garcia et al. (2012), the authors
investigate two types of spillovers: those resulting from within-
property substitution and those resulting from program impacts on
market prices. The authors find evidence of both, with substitution
effects that vary across common property landholdings in patterns
consistent with an underlying mechanism of credit constraints.
They find no evidence for within farm leakage on private land, per-
haps in part because of difficulties identifying the boundaries of
those parcels. In Alix-Garcia et al. (2013), the authors evaluate both
environmental and poverty alleviation impacts of the program, and
find small but significant effects on deforestation and insignificant
effects for poverty outcomes. A number of other authors have inves-
tigated leakage or slippage effects of conservation programs in the
United States (Wu, 2000, 2005; Roberts and Bucholtz, 2005; Roberts
and Bucholz, 2006), and found mixed evidence.3
The results presented here complement the work of Alix-Garcia
et al. (2012) on a number of dimensions. First, their analysis relies
on matching techniques among contracted and uncontracted land-
holders, while this paper benefits from a randomized experiment.
Second, the within-property spillovers that they identify in Mexico
are associated with common property landholdings (ejidos), while
this paper concentrates on the land use decisions of individual
property-holders. Third, the contracts in Mexico are for avoided
deforestation (leaving existing trees on the land), while those in
Malawi are for afforestation (planting new trees on the land).
Finally, they show evidence consistent with spillovers from price
effects, which this study is less well placed to evaluate.4
Like all field experiments and empirical case studies, the gen-
eralizability of these findings may be limited to the study context,
specifically to the local imperfections in land and labor markets.
Most notably, where land constraints are binding, or where the
only land not under crop production is forested, within-farm leak-
age associated with targeting low opportunity cost landholders is
likely to increase. In addition, the study sample size is small, which
limits the subtlety of the possible analyses. In spite of these limita-
tions, the paper makes a clear contribution as the first randomized
experiment to analyze the impacts of a payments for environmental
services program on contracted households and on uncontracted
land use outcomes. The paper proceeds as follows. The next sec-
tion lays out a simple conceptual framework for understanding
the impacts of a PES contract. Section 3 describes the context and
field experiment. Section 4 presents the results on random con-
tract assignment and Section 5 shows the impacts from targeting
contracts through an auction. Section 6 concludes.
2. Conceptual framework
2.1. Set up
We begin with a simple conceptual model to clarify intuition
around the effects of a PES contract on land and labor allocation, and
also how these effects may vary based on how contracts are allo-
cated. We use the insights from the model to inform our empirical
analysis. We consider an agricultural household that maximizes its
utility from leisure (Ll ) and consumption (C). Consumption is gener-
ated through agricultural production and wages earned in off-farm
3
The payments under a PES contract may themselves contribute to forest clearing
if they facilitate the purchase of labor or other inputs needed for land conversion or
if they affect demand for land intensive goods (as in Alix-Garcia et al. (2013b)). We
are not able to separately test for those types of spillovers in this paper, though we
note that payments are, on average, lower among those who receive the contract
via the lottery than via the auction.
4
See also Uchida et al. (2009) for evidence of labor market effects from China’s
nationwide PES program.
 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658
labor. For simplicity, the price for consumption is set equal to one.
Agricultural output (Xa ) is a function of land (Aa ), on-farm labor
(Lon ) and a variable input (V) (e.g. fertilizer). The latter is not essen-
tial for the production, can only be acquired by paying cash (i.e. no
credit). We assume zero costs of land clearing for the production of
agricultural output.
Consistent with our empirical setting, assume that land con-
straints do not bind and households allocate a fixed amount of
land (A) to agricultural production (Aa ) and leave the rest idle (Ai ).
We assume the existence of an off-farm labor market that pays
an exogenous wage w as a way for households to access liquidity,
which can be spent on the acquisition of variable inputs for the
agricultural production or put toward consumption.5 Households
can either consume their agricultural output or sell it in the mar-
ket at a price equal to pa . If households are net consumers, pa can
be interpreted as the opportunity cost of consuming their agricul-
tural output and therefore, the only way for them to access liquidity
would be working off-farm. Households allocate a fixed quantity of
labor (L) to own production (Lon ), off-farm casual labor (Loff ) and
leisure (Ll )
With exogenous prices for consumption (pc ), agricultural output
(pa ) and the variable input (pv ), the household budget constraint is
given by:
pc C = wLoff − pv V + pa Xa (Aa , Lon , V ). (1)
2.2. The household’s decision without PES
The household maximizes their utility from consumption and
leisure subject to their labor and budget constraints:
max U(C, Ll )
subject to L = Lon + Loff + Ll (2)
pc C ≤ wLoff − pv V + pa Xa (Aa , Lon , V )
where Lon , Loff , Ll , Aa , Ai , V ≥0.
This standard set up leads to intuitive comparative statics on
the first order conditions: (a) households allocate labor to own
production up to the point where the marginal productivity of
on-farm labor is equal to the ratio of the off-farm wage to the
value of agricultural output, (b), households apply the variable
input until the cost of an additional unit is equal to the value in
agricultural production that it generates and (c) the marginal pro-
ductivity of the last unit of land allocated to agricultural production
is zero, meaning that households allocate land to crop production
until no further benefits can be gained by adding additional land.
This is consistent with our assumption that households dispose
of idle land and are therefore not land constrained. In a setting
where land constrained households optimally allocate all of their
land to agricultural production, the shadow price of land would be
positive.
Intuitively, households trade off leisure for consumption and
variable inputs at the off-farm wage rate. To hold agricultural
production constant, the marginal rate of substitution between on-
farm labor and the variable input is equal to the ratio of the wage
to the price of the variable input.
2.3. The decision with PES
Under a payments for environmental services (PES) program,
households have the option of allocating land and labor to tree
5
While this is a simplification, over 85 percent of the study sample reports seeking
casual labor when they run out of food. Only 20 percent report selling livestock to
smooth consumption and even fewer report selling assets.
647
planting. For every unit of trees produced (Xt ) households receive
a payment (pes), which provides them with liquidity.6 Tree pro-
duction is assumed to be a function of land (At ) and labor (Lt ), but
to require none of the variable input. In Appendix, we show the
new household maximization problem, assuming Cobb–Douglas
production:
Xa (Aa , Lon , V ) = ˛Aıa (Lon + (1 − )V )1−ı (3)
 1−
Xt (At , Lt ) = At Lt (4)
The first order conditions are similar to those without PES. House-
holds now equate the marginal productivity of land and labor across
agricultural production and tree production, supplying labor to the
market when the wage exceeds its marginal productivity in on-
farm uses and leaving land idle when its marginal productivity is
zero.
2.4. The impact of PES on land and labor allocation
The PES contract will divert land away from agricultural produc-
tion whenever (ıXa /ıXt ) > (pes/pa ), which is most likely to occur if
agricultural productivity is low. The amount of idle land will fall rel-
ative to the no-PES case if trees can be produced more cheaply than
can agricultural output, such that it is profitable to convert previ-
ously idle land for tree production. This will be particularly likely
if tree production is less labor intensive than is crop production:
(Lt /At ) < (La /Aa ).
The contract also has implications for labor allocation. Like in the
no-PES case, households will allocate labor to agricultural produc-
tion until its marginal productivity equals the ratio of the off-farm
wage to the value of agricultural output, and the variable input
will still be used until its marginal value in terms of agricultural
production equals its cost per unit. However, under the PES pro-
gram, households will also allocate labor to tree production until
its marginal productivity equals the ratio of the off-farm wage to
the payment per tree produced. Because on-farm labor and the
variable input are substitutes in the agricultural production func-
tion (i.e. a given level of production can be maintained with less
labor if more of the variable input is used), the demand for on-
farm labor decreases as the variable input V increases. This means
that households choose to allocate labor to agricultural produc-
tion or to allocate labor to wage labor and substitute on-farm labor
with the variable input. In the absence of the PES contract, house-
holds can only substitute on-farm labor through cash acquired
from off-farm labor. However, intuitively the introduction of pay-
ments for environmental services may lessen liquidity constraints,
providing an alternative source of cash income. However, these
dynamic predictions are not easily captured in a static household
model.
By affecting land and labor allocations and agricultural input
demand and output, PES may also have general equilibrium effects
on prices and wages. For example, if households substitute on-farm
labor with use of the variable input, then off-farm labor supply will
increase and wages will fall in equilibrium while the price of the
variable input increases.
Many of the predictions of the impact of PES on land and labor
allocation depend on the context. Land and labor market func-
tionality varies widely in developing countries, and depending on
the local constraints, PES impacts may be very different. See, for
6
Alix-Garcia et al. (2012) and Jayachandran (2013) show that missing credit mar-
kets affect both the take up of PES contracts and their effects on additionality. A
separate analysis of the impacts of liquidity constraints is beyond the scope of the
current study.
648 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658
example, Zilberman et al. (2008) for a discussion of the impacts of
PES under different market institutions.
2.5. The effect of contract allocation
A household’s willingness to accept the PES contract is deter-
mined by the cost to the household of allocating the necessary land
and labor to implement the required tree planting activities. Con-
sider two households, one with surplus land and labor such that
Ai > 0 and Ll > 0 and one that fully uses its endowments of land and
labor for productive purposes (Ai = 0 and Ll = 0). The PES contract is
more costly for the latter household since planting trees requires
a reallocation of land and labor away from production, while the
former household can implement the contract at the utility cost
of foregone leisure only. Therefore, in an auction or other revealed
preference setting, the former household is likely to reveal a lower
willingness to accept than is the latter household.
All else equal, a contract allocation that targets low willingness
to accept households is more likely to enroll households with sur-
plus land and labor. As a result, leakage, as defined by bringing
additional land into production, may increase as surplus land is
cleared for trees or crops displaced by tree production. On the other
hand, if most households can access surplus land and cost het-
erogeneity is associated with whether the surplus land is already
cleared, then additional clearing may be lower among low oppor-
tunity cost households. At the same time, low opportunity cost
households receive a larger surplus for a PES payment of a given
size, resulting in better livelihood impacts and less distortion of
household labor allocation.
3. Context and design
Malawi has experienced high rates of deforestation driven
largely by the demand for fuelwood used for curing tobacco and
for cooking and heating, and by opening up new land for agricul-
tural production (FAO, 2001). Over 80 percent of Malawians live in
rural areas and 73.9 percent of the population is below the income
poverty line (UNDP, 2013). Efforts to slow deforestation or promote
afforestation are needed but must also consider the income needs
of the population. Malawi is therefore a good candidate for PES pro-
grams that compensate landholders for actions that help address
deforestation concerns.
This study follows up on a program designed to encourage small
farmers in central Malawi to plant M’bawa (Khaya anthotheca) trees
on their land. The program is described in greater detail in Jack et al.
(2013) and Ajayi et al. (2012). The program was implemented by the
World Agroforestry Centre (ICRAF), with the objective of increasing
environmental services from agricultural land, specifically carbon
sequestration, while also offering income-generating opportuni-
ties to participating farmers in the form of incentive payments. In
addition to the incentive payments, the trees provide benefits to
households over the long term, through erosion control and soil
fertility. The study took place in Ntchisi District in Central Malawi,
a relatively flat and arid area which is heavily dependent on rainfed
agriculture. Households in the study sample grow primarily maize,
soya, tobacco and potatoes on an average of 5 acres of land. The
site was chosen in part due to the growing pressure on land use
in Central Malawi, where population density has historically been
lower than in the Southern part of the country, but is increasing
rapidly.
Farmers who participated in the program received a tree plant-
ing contract that provided them with inputs and training upfront
and paid them a piece rate per surviving tree at four intervals over
three years. Farmers were asked to plant 50 trees on half an acre
of land, and received 60 Kwacha per surviving tree, for a maximum
possible pay out under the contract of 12,000 Kwacha or about
85 USD.7 For a typical household in Malawi, this is a substantial
amount of income, over a tenth of average household income dur-
ing the first year, when the contract makes two payments and half
that during subsequent years.8
To maximize tree survival, households must invest both fixed
(land and labor for planting) and variable (labor for weeding and
watering) costs. The half an acre of land allocated to the contract is
around one-tenth of households’ self reported land holdings. Thus,
one question of interest is whether the payments under the con-
tract compensate for the costs borne by a contracted landholder.
In this context, leakage may occur if households clear additional
forested or fallow land for agricultural production to make up for
the land set aside for the contract. Given the small scale of the
program, equilibrium price effects are less likely.
3.1. Contract allocation
Households were randomly assigned to participate in an auc-
tion or a lottery, as described in Jack et al. (2013). In the auction,
228 households bid in an incentive compatible (generalized Vick-
ery auction (Vickrey, 1961, 1976)). The clearing price for the auction
set a take it or leave it price that was offered to the study sample
of 205 households, who heard the offer and indicated their choice
of whether to accept the price using private decision cards. All but
one of the households chose to accept the price.9
The budget available for contracts was insufficient to contract
with all interested landholders so a lottery was implemented to
draw identification numbers out of a box. ID numbers, but not
names, were read aloud to the group, and 91 households received
contracts through the lottery. The lottery was highly transparent
and allowed no opportunity for cheating. Therefore the character-
istics of households assigned to the contract treatment through
the lottery should be balanced with the households not chosen
for a contract. Table 1 shows the means and standard deviations
of household characteristics for the lottery allocation, and for the
assignment to the allocation treatment groups. Because of the small
sample size and the lack of stratification, some variables are signif-
icantly different across lottery outcomes.
Column 5 of Table 1 shows the p-value from a t-test of equal
means by lottery outcome. Only one variable is significantly differ-
ent at p < 0.05. Households growing cash crops were significantly
more likely to receive a contract. Households with more fields and
more education were marginally (p = 0.09) more likely to receive
a contract. The p-value for balance across allocation treatments is
shown in column 6. Across allocation treatments, only one variable
marginally differs between groups: households with prior con-
tact with the NGO are marginally more likely to be in the auction
treatment.
3.2. Data collection
The study relies on three sources of data: a baseline survey
collected before households were aware of the program, an end-
line survey collected at the end of the three-year contract and
7
The design of the contract and the incentives it offers is likely to have important
impacts on leakage and household livelihood impacts. However, the field exper-
iment described here involves no variation in contract design. Thus, we consider
impacts conditional on contract design.
8
Malawi’s per capita gross national income (GNI) was USD 290 or MWK 40,600
in 2008 (Bank World, 2008).
9
We note that the low rejection rates in the lottery treatment contradicts the
bidding results in the auction. A full discussion of the differences between the allo-
cation treatments is beyond the scope of this article. We refer the interested reader
to Jack et al. (2013) for further detail.
 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658 649

Table 1
Randomization balance.

No contract Contract Lottery Auction (1) vs. (2) p-value (3) vs. (4) p-value
(1) (2) (3) (4) (5) (6)

Household size 4.246 4.681 4.439 4.636 0.14 0.33

[2.029] [2.180] [2.103] [2.083]
Education (1–5)a 2.193 2.396 2.283 2.154 0.09 0.11
[0.830] [0.842] [0.839] [0.844]
Laborsharing group (0/1) 0.351 0.462 0.400 0.465 0.11 0.17
[0.479] [0.501] [0.491] [0.500]
Casual labor income (0/1) 0.684 0.637 0.663 0.662 0.48 0.98
[0.467] [0.483] [0.474] [0.474]
Use family labor only (0/1) 0.789 0.725 0.761 0.759 0.29 0.96
[0.409] [0.449] [0.428] [0.429]
Stated labor constraint (0/1) 0.053 0.033 0.044 0.044 0.50 1.00
[0.224] [0.180] [0.205] [0.205]
Minutes gathering firewood 116.912 126.989 121.385 111.412 0.40 0.25
[77.683] [92.917] [84.716] [95.735]
Total landholding (acres) 4.906 4.984 4.940 4.970 0.88 0.93
[4.083] [2.734] [3.540] [3.012]
Number of fields 1.333 1.505 1.410 1.373 0.09 0.56
[0.737] [0.689] [0.719] [0.606]
Total number of crops 3.018 3.286 3.137 3.035 0.12 0.36
[1.226] [1.204] [1.221] [1.106]
Minutes from home to field 20.643 20.653 20.648 23.931 1.00 0.13
[18.305] [19.491] [18.794] [24.994]
Cash crops (0/1) 0.737 0.901 0.810 0.829 0.00 0.60
[0.442] [0.300] [0.393] [0.377]
Stated land constraint (0/1) 0.026 0.022 0.024 0.048 0.84 0.19
[0.161] [0.147] [0.155] [0.215]
Past borrowing (0/1) 0.289 0.341 0.312 0.307 0.43 0.91
[0.456] [0.477] [0.465] [0.462]
Age of the participant 36.877 38.967 37.804 38.770 0.36 0.53
[16.172] [15.878] [16.037] [15.905]
Female participant 0.482 0.407 0.449 0.522 0.28 0.13
[0.502] [0.494] [0.499] [0.501]
Months of food shortage 4.289 4.066 4.190 4.211 0.45 0.92
[2.288] [1.884] [2.116] [2.229]
Prior tree planting (0/1) 0.447 0.538 0.488 0.500 0.20 0.80
[0.499] [0.501] [0.501] [0.501]
Prior contact with NGO (0/1) 0.211 0.286 0.244 0.325 0.21 0.06
[0.409] [0.454] [0.430] [0.469]
Risk preferences (1–3)b 2.161 2.132 2.148 2.123 0.83 0.78
[0.935] [0.945] [0.938] [0.921]
Time preferences (1–6)b 3.184 3.272 3.223 3.344 0.77 0.56
[2.148] [2.221] [2.175] [2.189]
Mistrusts outsiders (1–3) 1.914 1.91 1.912 1.81 0.97 0.16
[0.779] [0.755] [0.766] [0.753]
Willingness to try tech (1–3) 2.018 1.901 1.966 1.895 0.35 0.40
[0.872] [0.907] [0.888] [0.874]
Asset index 0.789 0.967 0.868 0.89 0.22 0.82
[1.035] [1.038] [1.037] [0.944]

Observations 114 91 205 228

Notes: Means are reported for each of the treatment groups with standard deviations in brackets. Difference in means calculates p-values from t-tests for equal means.
a
The range for categorical variables is provided in parentheses. (0/1) indicates a dummy variable, equal to one if the response is yes.
b
Time preferences and risk preferences are elicited using survey questions. Higher risk preference corresponds to more risk seeking. Higher time preference corresponds
to a lower discount rate.

administrative data on tree survival at each of four monitoring
intervals. Both the baseline and the endline survey were conducted
orally at respondents’ homes by Malawian enumerators in the local
language, Chichewa.
The baseline survey consisted of questions on land use, house-
hold demographics and socioeconomic indicators, as well as a
number of measures anticipated to relate to a household’s ability or
willingness to implement the tree planting contract. The baseline
was conducted on 536 households including the 205 assigned to
take part in the lottery and 228 assigned to the auction. The end-
line survey repeated the questions from the baseline and added
additional ones to help measure the leakage and livelihood impacts
of the program. Out of the 433 households that participated in the
contract allocation, 408 were located for the endline survey (>94%).
We turn next to the analysis of attrition and resulting treatment
balance across households, which has implications for the empirical
strategy.
3.3. Attrition
In spite of the straightforward methodology facilitated by the
random allocation of contracts, the treatment effect may be biased
if the attrition between the baseline and the endline is not balanced
across treatment groups. Before turning to the analysis, we exam-
ine evidence for differential attrition by treatment. The baseline
survey took place in July and August of 2008. The contract started
in December 2008 and lasted for three years, ending in December
2011, when the endline survey was implemented. Retention rates
of around 95 percent indicate that the number of households miss-
ing from the endline data are not a large share of the sample,
650 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658

Table 2
Contract treatment effects – land use outcomes.

Has cleared land in Total plots cleared No. of plots planted Total trees across Has acquired new
last 3 years in last 3 years with trees all plots land since 2008
(1) (2) (3) (4) (5)

Panel A: Treatment effects of random contract assignment

Contract 0.200** 0.543** 0.526* 17.955 −0.041
(0.083) (0.245) (0.264) (14.017) (0.039)
R-squared 0.112 0.104 0.191 0.109 0.178

Panel B: Marginal effect of (endogenous) contract payout (in ’000 MWK)

Total payout under contract 0.031** 0.090** 0.093** 4.575 0.001
(0.011) (0.037) (0.036) (3.078) (0.005)
R-squared 0.122 0.118 0.209 0.133 0.175

Mean, no contract 0.311 0.745 1.943 26.481 0.179

Notes: N = 205. All regressions include a full set of individual controls. Standard errors are clustered at the village level. Panel A shows OLS results for the binary contract
treatment. Panel B shows the differential effect between the baseline and endline of a marginal increase in the (endogenous) contract payout.
* p < 0.1; ** p < 0.05; *** p < 0.01.

however, they are also not balanced across relevant household
characteristics. Table A.1 shows the means and standard deviations
of relevant variables for the baseline and endline samples, and the
p-values from a t-test for equal means. Households with more cash
crops and more trust in outsiders are more likely to be present in
the endline data. These variables are controlled for throughout the
analysis.
4. PES contract impacts
to receive a contract. The level effect of the contract (ı) contains
any underlying difference in the outcome between contracted and
uncontracted households while the coefficient on the interaction,
, captures the correlation between endogenous contract payment
and yiv .
Where outcomes are recorded in both the baseline and the end-
line, the differential relationship between contract payment and
outcome for baseline and endline measures is estimated using the
OLS regression:

yivt = ˛i + ıpayi + ˛Endt + payi × Endt + ˇxi + εivt . (8)

The first set of results analyze the outcomes from the random
assignment of households to the payments for environmental ser-
vices contract, restricting attention to the lottery treatment group.
Consequently, the analytical strategy is straightforward, and relies
on linear regression analysis of outcomes on contract treatment
status Ci :
yiv = ˛i + ıCi + ˇxi + εiv
where yiv is a landuse related or socioeconomic outcome measure,
observed at the end of the three year contract. Individual-level
baseline controls (xi ) are used to correct for lack of balance in the
randomization (see Section 2), and standard errors (εiv ) are clus-
tered at the village level. Where baseline data exists, a difference
in difference strategy is used to identify changes in the outcome of
interest that can be attributed to the randomly assigned contract.
yivt = ˛i + ıCi + ˛Endt + Ci × Endt + ˇxi + εivt
Outcomes are the same as in Eq. (5), and the dummy variable Endt
equals one if the observation was recorded in the endline.
Estimating the causal effect of random assignment to the con-
tract ignores the variability of treatment intensity. The amount
that a household was paid under the contract is endogenous to
tree survival, which itself is a function of landholder character-
istics. A regression of outcomes on contract payments therefore
suffers from endogeneity: landholders with higher rates of tree
survival are likely to be different on a number of dimensions that
may also explain changes in outcomes over time. Results showing
the marginal effect of contract payments, while helpful for under-
standing the pattern of participant outcomes should therefore be
interpreted with caution. To examine the relationship between out-
comes and treatment intensity, we regress:
yiv = ˛i + ıCi + Ci × payi + ˇxi + εiv ,
where payi is the total amount in thousands of MWK that a contract
holder received over three years (rounded to integers from 0 to 12),
and is set to zero for individuals who were randomly assigned not
The coefficient on payi (ı) captures any baseline correlation
between the endogenous payment received and the outcome vari-
able, while the interaction term, , represents the change in the
correlation between payment and outcome between the baseline
and the endline.
(5)
4.1. Landuse results
We begin by exploring changes in landuse to detect evidence of
within-farm leakage. If households that were randomly assigned
to receive a contract through the lottery also adjust other margins
of landuse, then an analysis of program impacts that focus only on
the half an acre under contract will off an over- or under-estimate.
Several types of landuse patterns are likely to indicate spillovers
from the contract. First, households that take land out of production
(6)
to plant trees may compensate by clearing other land for produc-
tion, as predicted in our model. Second, households may adjust the
number of trees that they plant on other plots that are not part
of the contract. Third, households may acquire additional land to
accommodate the tree planting under the contract.
4.1.1. Contract treatment effects
Panel A of Table 2 shows the results of linear regressions, as
described in Eq. (5) of endline landuse variables on randomly
assigned contract status for all households in the lottery who were
also surveyed as part of the endline. The results show support for
evidence of clearing and re-arranging tree planting activities, but
not for effects on land acquisition. Specifically, households ran-
domly assigned a contract were 17 percentage points more likely to
report clearing any land than households with no contract, among
whom clearing rates were 31.7 percent. This corresponds to roughly
(7)
half an additional plot with reported clearing among the contracted
group. Together, these results indicate that the contract had a sub-
stantial effect on clearing, consistent with the predictions of the
conceptual framework in Section 2.
 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658
Fig. 1. Marginal effects of contract payouts: Land use outcomes. Notes: Marginal effects at different levels of contract payout. Regressions include a full set of individual
controls and cluster standard errors at the village level. The dashed line is the mean outcome in the control group.
Contracted households report about half an additional plot with
trees planted on it, off of about 2 plots with trees among the con-
trol group. Of the 89 contracted households located for the endline
survey, 24 had no surviving trees. The fact that contracted house-
holds report, on average, only half a plot more with trees on it
suggests that they are either planting in places where they would
have planted trees anyway, or that they are reducing tree planting
activities on other plots, though at a rate of less than 1:1. Though not
significant, households with a contract report about 15 more trees
on their land. This is the average survival rate among contracted
households in the lottery group. This result provides support for
the interpretation that the contract results in additional tree plant-
ing on land that would have received some trees anyway, rather
than a reduction in tree planting elsewhere.
Finally, the last column shows no evidence of acquiring new land
to accommodate the contract. This suggests that the land used for
the contract was already owned by the household, and is consistent
with poorly functioning local land markets. Together the patterns
of landuse adjustment show a clear picture of within-farm leak-
age associated with clearing additional land for production. Most
notably, we observe that each contract results in approximately
half an additional plot with trees planted on it, and also half an
additional plot cleared for agricultural production. Recall that these
data are collected at the end of the three year program, and do not
necessarily reflect longer-term land use patterns.
4.1.2. Correlation with contract payout
Panel B of Table 2 shows the results from estimating Eq. (7).
The estimated coefficient describes the correlation between a
1000 MWK increase in contract payout and land use outcomes at
the mean payout. Fig. 1 offers a more informative display of the
relationship at different levels of contract payout. Neither the coef-
ficient estimates in Table 2 nor the plots in Fig. 1 have a causal
interpretation, however, the results are still informative. The fig-
ure shows that landholders who received a contract but no payout
were no more likely than the control group to clear land or to have
more trees on their land than were those who did not receive a
contract, but the likelihood of those outcomes is increasing in the
number of surviving trees. The likelihood of acquiring additional
land appears to fall as tree survival increases, perhaps because
households that did best under the contract had non-binding land
constraints.
4.2. Socioeconomic results
Next, we examine the socioeconomic outcomes associated with
the contract to detect how this affected household livelihoods.
If households who were randomly allocated a contract benefited
from the income earning opportunity presented by the contract
651
payments, livelihood indicators should look different between
those who received a contract and those who did not. While we
do not have a clean measure of household wealth or assets, we
investigate a number of livelihood indicators in Table 3, including
spending on food, agricultural income, borrowing behavior, months
of food insecurity and an index of household assets. We begin with
variables measured during the endline survey (columns 1 and 2)
then turning to difference-in-difference analysis (columns 3–5) as
defined in Eq. (6).
4.2.1. Contract treatment effects
None of the measures of livelihoods show a significant effect
from the contract in Panel A. Per capita spending on consumption
is unchanged, as is total household income. Self-reported borrow-
ing, months of food shortage and an index of assets do not change
differentially between the baseline and endline for contracted
households. There is some indication of socioeconomic shifts over
time among the study households: households report more bor-
rowing activity and fewer months of food shortage in the endline
than they did in the baseline, but this is true for both households
with and without a contract.
While there is no evidence that the contract affected house-
hold outcomes overall, the results in Table 2 show effects on crop
production patterns. We therefore turn to a number of measures
of reported household labor allocation to investigate whether the
contracts changed the availability of agricultural labor or how
households chose to allocate labor on- and off-farm (Panel A,
Table 4). All variables are analyzed in a difference-in-difference
framework.
Households that randomly received a contract are more likely
to show signs of labor constraints. First, they are more likely to self
report that they are labor constrained. Only around 4 percent of
households without a contract self-report labor shortages within
the household. Among those with a contract, the rate increases by
15 percentage points. This may be explained in part by the increase
in labor demand associated with the contract, since households
with a contract will allocate part of their fixed labor endowment
to the tree production. The land clearing results shown in Table 2
are consistent with this explanation. However, as discussed in Sec-
tion 2 it may also have to do with changes in on- and off-farm labor
allocation. Column 2 shows that around two-thirds of households
in the no-contract group engage in casual labor as an income gen-
erating strategy. In this credit-constrained setting, it is common for
household members to sell their labor as a short-run strategy for
accessing cash. Households with a contract are almost 17 percent-
age points more likely to do so. This is somewhat surprising, given
the earlier evidence that households have brought more land into
production to compensate for the contract, and that households
with a contract are not, on average, worse off. Consistent with this,
652 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658

Table 3
Contract treatment effects – socioeconomic outcomes.

Per capita spending on food Total income from crop sales Past borrowing (0/1) Months of food shortage Asset index
(1) (2) (3) (4) (5)

Panel A: Treatment effects of random contract assignment

Contract −32.146 436.577 0.039 −0.054 −0.031
(31.872) (4806.237) (0.059) (0.243) (0.147)
End 0.437*** −1.430*** 0.158
(0.067) (0.244) (0.139)
Contract × End −0.034 0.243 0.073
(0.096) (0.379) (0.181)
R-squared 0.301 0.309 0.242 0.274 0.312

Panel B: Marginal effect of (endogenous) contract payout (in ’000 MWK)

Total payout under contract −2.568 401.757 0.006 −0.006 0.009
(3.691) (809.074) (0.005) (0.018) (0.010)
End 0.437*** −1.449*** 0.189
(0.059) (0.239) (0.149)
Payout × End −0.006 0.046 0.001
(0.014) (0.050) (0.029)
R-squared 0.295 0.310 0.422 0.465 0.540

Baseline mean, no contract 112.881 32,000.000 0.510 3.630 0.899

N 195 205 400 410 410

Notes: All regressions include a full set of individual controls. Standard errors are clustered at the village level. Panel A shows OLS results for the binary contract treatment.
Panel B shows the differential effect between the baseline and endline of a marginal increase in the (endogenous) contract payout. Columns 3–5 use both baseline and endline
observations.
* p < 0.1; ** p < 0.05; *** p < 0.01.

households with a contract are not more likely to engage in casual
labor as a food security coping strategy (column 3). The labor results
may therefore be driven by the share of households that did not
respond to the decreased production by clearing new land, which
lowers demand for on farm labor and increases the supply of off
farm labor, or may be associated with households with lower rates
of tree survival.
On the other hand, the labor supply results are consistent with
household labor allocation decisions that are shaped by liquidity
constraints, as described in the conceptual framework. Contracted
households may substitute on-farm labor with variable inputs like
fertilizer, relaxing on-farm labor demand, and thus increasing wage
labor to alleviate liquidity constraints. This effect would be likely,
as described in Section 2, if the PES contract increases the shadow
price of labor relative to the price of the variable input (e.g. fertil-
izer). Though they should be interpreted with caution due both to
multiple sources of endogeneity and low statistical power, addi-
tional analyses suggest patterns consistent with these predictions.
Specifically, households that are more liquidity constrained at base-
line are more likely to increase off-farm labor supply as a result
of the contracts, and households that increase their off-farm labor
supply over the course of the contract are more likely to increase
fertilizer use. Neither effect is precisely estimated, and the direc-
tion of causality on these results is unclear, so we mention these
additional tests only for the sake of discussion.
4.2.2. Correlation with contract payout
Panel B in Tables 3 and 4 show the correlation between a
1000 MWK increase in the contract payout and relevant socioeco-
nomic outcomes. Columns 3–5 of Panel B in Table 3 and Panel B in
Table 4 show the difference in difference relationship of the corre-
lation with outcomes before and after the program for contracted

Table 4
Contract treatment effects – household labor outcomes.

Casual labor is a coping strategy Casual labor income (0/1) Stated labor constraint (0/1)
(1) (2) (3)

Panel A: Treatment effects of random contract assignment

Contract 0.041 −0.007 −0.009
(0.038) (0.067) (0.032)
End −0.246*** −0.105 −0.035
(0.047) (0.073) (0.028)
Contract × End 0.092 0.182** 0.145**
(0.071) (0.087) (0.053)
R-squared 0.241 0.137 0.074

Panel B: Marginal effect of (endogenous) contract payout (in ’000 MWK)

Total payout under contract 0.011** −0.001 0.002
(0.005) (0.006) (0.003)
End −0.217*** −0.100 −0.013
(0.053) (0.075) (0.025)
Payout × End 0.005 0.027* 0.015*
(0.011) (0.013) (0.008)
R-squared 0.240 0.340 0.228

Baseline mean, no contract 0.788 0.660 0.038

Notes: N = 410. All regressions include a full set of individual controls. Standard errors are clustered at the village level. Panel A shows OLS results for the binary contract
treatment. Panel B shows the differential effect between the baseline and endline of a marginal increase in the (endogenous) contract payout.
* p < 0.1; ** p < 0.05; *** p < 0.01.
 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658 653

Fig. 2. Marginal effects of contract payouts: Socioeconomic outcomes. Notes: Marginal effects at different levels of contract payout. Regressions include a full set of individual
controls and cluster standard errors at the village level. The dashed line is the mean outcome in the control group.

Fig. 3. Marginal effects of contract payouts: Labor outcomes. Notes: Marginal effects at different levels contract payout. Regressions include a full set of individual controls
and cluster standard errors at the village level. The dashed line is the mean outcome in the control group and estimates show the difference in difference coefficient.

and uncontracted households (see Eq. (8)). While these estimates
do not have a causal interpretation, they do control for baseline
levels of the outcome variables.
Figs. 2 and 3 plot the correlation at different tree survival out-
comes. The plots shown in Fig. 2 do not show large differences
between the control group (shown by the dashed horizontal lines)
and the contracted groups, consistent with the treatment effects
estimated above. The labor outcomes shown in Fig. 3 show a more
consistent pattern: as the contract payout increases, households are
more likely to self-report insufficient household labor. The slopes
on performing casual labor for others and using casual labor as a
coping strategy appear to be shifted up slightly for the treatment
group, but not to differ across contract payout levels. Given the lack
of overall socioeconomic impacts as shown in Fig. 2, the payments
under the contract appear to have offset some of the household
labor impacts.
4.3. Village-level spillovers
Leakage is also possible within the village via land or labor mar-
kets (see, for example Alix-Garcia et al., 2012; Uchida et al., 2009).
We conduct preliminary analysis of village-level spillovers using
the random variation in the number of contracts within the village
as a result of the lottery. Among households assigned to the lottery
treatment, we regress a series of labor and land market related vari-
ables on the share of households within the village that randomly
received a contract.10 The regressions also control for the total
number of contracts within the village as a share of the village pop-
ulation, the population of the village, and whether the household
received a contract.11 The likelihood of engaging in casual labor, the
number of days worked, and the wage received are all unaffected
by an exogenous increase in the share of contracts within the vil-
lage. The probability of acquiring new land is also unaffected, and
land prices are not available.
5. Targeting impacts: Auction versus lottery
The second set of results analyze whether the leakage and liveli-
hood effects documented in the previous section are mitigated
through better targeting of contracts to low opportunity cost land-
holders. The analysis relies on a difference in differences strategy to
evaluate differences in outcomes between contracted and uncon-
tracted households by allocation treatment. The OLS regression
of outcome on a contract indicator Ci interacted with an auction
indicator Ai captures the relevant effect:
yiv = ˛i + ıCi + ˛Ai + Ci × Ai + ˇxi + εiv (9)
yiv is a landuse related or socioeconomic outcome measure,
observed at the end of the three year contract. Individual-level
time-invariant controls (xi ) are used to correct for lack of balance
in the randomization (see Section 2), and standard errors (εiv ) are
clustered at the village level. Where baseline data exists, a triple
difference strategy is used to identify changes in the outcome of
interest by interacting contract status, allocation treatment and an
endline indicator.

11
A full set of individual controls are included, and the OLS regression is clustered
10
The tables showing these regression results are available upon request. at the village level.
654 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658

Table 5
Auction treatment effects – land use outcomes.

Has cleared land in Total plots cleared No. of plots planted Total trees across Has acquired new
last 3 years in last 3 years with trees all plots land since 2008
(1) (2) (3) (4) (5)

Contract 0.215** 0.582** 0.560** 18.217 −0.052

(0.081) (0.237) (0.256) (14.483) (0.044)
Auction 0.196** 0.482* 0.162 −2.339 −0.070
(0.078) (0.236) (0.279) (5.586) (0.044)
Contract × Auction −0.138 −0.120 −0.024 −0.431 0.064
(0.119) (0.380) (0.331) (15.800) (0.067)
Total effect: Auction contract 0.077 0.461* 0.536** 17.786* 0.012
(0.054) (0.249) (0.227) (8.282) (0.038)

R-squared 0.089 0.092 0.097 0.077 0.109

Mean, no contract 0.393 0.942 1.895 24.802 0.132

Notes: N = 433. All regressions include a full set of individual controls. Standard errors are clustered at the village level. The total effect of contracts allocated through the
auction is the linear combination of the contract coefficient and the interaction term.
* p < 0.1; ** p < 0.05; *** p < 0.01.

5.1. Landuse results
As shown in Section 4.1, households that were randomly
assigned a contract are more likely to clear land, with additional
clearing of about half a plot, on average. They also have more plots
with trees on them than do households without a contract, but are
no more likely to acquire new land. These results are reproduced
in the first row of Table 5, which shows the results from estimating
Eq. (9) for the set of land use outcome variables.
To the extent that more efficient targeting of contracts miti-
gates leakage concerns by allocating contracts to households for
whom the opportunity cost of the contract is lowest, then we would
expect , the coefficient on the interaction of the contract and auc-
tion indicators, to be negative and significant in columns 1 and
2. In both cases, the coefficient is negative but not precisely esti-
mated. For both outcomes (any clearing and the number of plots
cleared) the total effect of contracts allocated through the auction
is insignificant or marginally significant and smaller in magnitude
than the effect of contracts allocated through the lottery. The num-
ber of trees resulting from a contract is similar across the allocation
treatments, as is the probability of acquiring new land.
Taken together, the results on land use outcomes suggest
marginally less within-farm leakage when contracts are allocated
to low opportunity cost landholders, with no difference in addi-
tionality as measured by the total number of plots with trees or the
total number of trees.
5.2. Socioeconomic results
Random allocation of afforestation contracts did not appear to
affect measures of household socioeconomic outcomes. The effect
may be different if the opportunity cost for self-selected (auc-
tion) households is lower, making the transfer net of costs greater.
Results from difference and difference and triple difference regres-
sions for the set of socioeconomic outcomes are shown in Table 6. As
is often the case with livelihood and asset measures, the effects are
noisy and few results are statistically significant. Overall, targeting
through the auction does not appear to result in different livelihood
effects than does random assignment of contracts; neither leads to
detectable effects on socioeconomic measures.
Unlike the socioeconomic outcomes analyzed in Table 6, the
contract did impact household labor outcomes, as shown in

Table 6
Auction treatment effects – socioeconomic outcomes.

Per capita spending Total income from Past borrowing (0/1) Months of food Asset index
on food crop sales shortage
(1) (2) (3) (4) (5)

Contract −32.736 1095.708 0.036 −0.066 0.007

(33.912) (4668.174) (0.058) (0.234) (0.144)
Auction 59.988 8608.354* 0.020 −0.313 0.003
(40.650) (4826.427) (0.041) (0.189) (0.086)
Contract × Auction 64.609 8853.264 −0.011 0.719** 0.095
(59.417) (7405.957) (0.078) (0.315) (0.141)
End 0.436*** −1.430*** 0.158
(0.065) (0.240) (0.137)
Contract × End −0.033 0.243 0.073
(0.093) (0.374) (0.178)
Auction × End 0.057 −0.228 0.143
(0.059) (0.328) (0.160)
Contract × Auction × End 0.021 −0.833* −0.044
(0.110) (0.448) (0.208)
Total effect: Auction contract 31.874 9948.973 0.013 0.064 0.130
(50.128) (7545.578) (0.062) (0.180) (0.117)

R-squared 0.092 0.177 0.270 0.297 0.256

Baseline mean, no contract 112.881 32,000 0.522 3.300 0.947
N 408 433 841 866 866

Notes: All regressions include a full set of individual controls. Standard errors are clustered at the village level. In columns 1 and 2, the total effect of contracts allocated
through the auction is the linear combination of the contract coefficient and the interaction term. In columns 3–5, the total effect also includes the interaction of the contract
and endline indicators, and the triple interaction. Columns 3–5 use both baseline and endline observations.
* p < 0.1; ** p < 0.05; *** p < 0.01.
 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658 655

Table 7
Auction treatment effects – household labor outcomes.

Casual labor is a coping strategy Casual labor income (0/1) Stated labor constraint (0/1)
(1) (2) (3)

Contract 0.038 −0.011 −0.017

(0.034) (0.066) (0.033)
Auction −0.050 −0.048 0.009
(0.042) (0.062) (0.031)
Contract × Auction 0.020 0.116 −0.018
(0.047) (0.086) (0.044)
End −0.246*** −0.105 −0.035
(0.046) (0.072) (0.028)
Contract × End 0.092 0.182** 0.145**
(0.070) (0.086) (0.053)
Auction × End 0.064 0.112 0.084*
(0.065) (0.086) (0.041)
Contract × Auction × End −0.181* −0.319** −0.065
(0.099) (0.124) (0.057)
Total effect: Auction contract −0.030 −0.032 0.045
(0.064) (0.058) (0.048)

R-squared 0.202 0.132 0.056

Baseline mean, no contract 0.840 0.625 0.060

Notes: N = 866. All regressions include a full set of individual controls. Standard errors are clustered at the village level. The total effect of contracts allocated through the
auction is the linear combination of the contract coefficient, the interaction of contract and auction, the interaction of the contract and endline indicators, and the triple
interaction.
* p < 0.1; ** p < 0.05; *** p < 0.01.

Section 4.2. Specifically, households assigned a contract randomly
were more likely to engage in casual labor and to report labor as
a constraint faced by the household than were households that
did not receive a contract through the lottery. The targeting of
contracts through the auction may have helped allocate them to
households with systematically different labor constraints, miti-
gating some of these impacts. Table 7 shows the results from three
triple-difference regressions to isolate the differential effect of a
contract allocated through the auction on labor outcomes in the
endline. The triple interaction term is statistically significant and
negative for the two casual labor variables: a contract allocated
through the auction results in a decrease in casual labor relative
to the baseline. The difference is also statistically different from
the change in labor outcomes between baseline and endline for
households that were randomly assigned to receive a contract. The
differential effect of the triple interaction is not precisely estimated
for the household’s stated labor constraint, though the coefficient
is negative.
The allocation of contracts through the auction does appear
to reduce the household’s propensity to engage in casual labor,
which – in the study setting – is a hunger coping strategy. This
suggests that the contract may have been relatively more benefi-
cial for households that self-selected into the contract rather than
receiving it at random through the lottery.
6. Conclusion
This study reports on a field experiment implemented in
Malawi, in which a random sample of landholders were given con-
tracts that paid them to plant trees on their land. In a second
treatment group, households bid in an incentive compatible auc-
tion, which allocated contracts to the households with the lowest
willingness to accept. The afforestation contract paid households
per surviving tree over a period of three years, and the evidence
shown here focuses on the impacts at the end of the contract period.
The comparison of randomly contracted households with house-
holds targeted through the auction uses a difference in difference
strategy (contract vs. no contract, auction vs. lottery) and triple-
differences when baseline and endline measures are available.
To interpret the results of the randomly assigned contracts, it is
important to note that all households in the lottery had previ-
ously been offered the contract at a take-it or leave-it price and
had accepted the price. Therefore, they provide a relevant sample
for studying contract impacts, though other work suggests that the
difference in allocation resulting from the lottery and the auction
may affect longer-term contract outcomes (Jack et al., 2013).
The evaluation shows clear evidence of within-farm spillovers
and suggestive evidence for livelihood impacts on randomly con-
tracted farmers. Specifically, the results show spillover effects from
the contract to farmers’ other landuse activities, most notably land
clearing. While the contract does not appear to adversely affect
general livelihood measures such as food shortages or assets, it
does cause landholders to report a greater incidence of labor short-
age, and to pursue more off-farm labor income as a coping strategy
for liquidity constraints. Thus, the contract does appear to have
both leakage and livelihood effects, which may be overlooked in
a standard analysis that examines only the direct impacts of the
contract.
Land use spillovers and household labor effects are somewhat
mitigated in cases where contracts were allocated through the
auction. Specifically, households that self-selected in to the con-
tract through the lottery display no negative leakage effects (they
are not more likely to clear additional land), they experience a
marginally significant increase in food security and they engage in
less casual labor (livelihood effects). Targeting does appear there-
fore to improve contract outcomes beyond environmental service
provision. Also the negative impacts on household labor outcomes
seem to be mitigated by auction allocation, since those households
show a lower probability of casual off-farm labor. In terms of addi-
tionality, both allocation treatments show positive effects.
This study makes a clear contribution as the first randomized
experiment to analyze the impacts of a payments for environmental
services program on contracted households and on uncontracted
land use outcomes. The findings reported here raise a number of
questions about the relationship between land, labor and credit
constraints for the affected households. Without comprehensive
consumption data, a complete analysis of the welfare impacts of the
contracts is difficult. While further work is needed, the analysis pre-
sented here offers suggestive evidence that narrow evaluations of
payments for environmental services, focused exclusively on land
656 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658

use impacts on contracted land, may overestimate the environ- labor and the use of other inputs like fertilizer are assumed to be
mental impacts, and neglect the socioeconomic impacts, of such substitutes.
programs.
Like most field experiments, the generalizability of the results U(C, Ll ) = ˇlnC + (1 − ˇ)lnLl (13)
may be limited. Households in this study were offered a par- Xa (Aa , Lon , V ) = ˛Aıa (Lon + (1 − )V )1−ı (14)
ticular type of PES contract, which differs on many dimensions
from better-studies programs that pay for avoided deforestation In the base scenario, the household maximizes the utility function
(Alix-Garcia et al., 2013; Pattanayak et al., 2010; Pagiola, 2008). with respect to labor, land and the variable input as follows:
Specifically, concerns about lower additionality as a result of tar- 1 
geting low opportunity cost households is less relevant for projects max U = ˇ ln (pa Xa (Aa , Lon , V ) + wL − wLl − wLon − pv V )
pc
that provide incentives for new activities such as afforestation.
In addition, the payment level offered through the program was + (1 − ˇ)lnLl
determined by an auction involving a statistically similar set of
Given this, the first order conditions are:
landholders, and is therefore based on revealed willingness to
ˇ
 −w  1−ˇ
accept, rather than the more common approaches to setting prices
ULl = + =0 (15)
that involve estimating foregone income using agricultural data. C pc Ll
In addition, the land and labor market failures that drive some
ˇ
1 
of the results may be specific the study context. Future model- ULon = (−w + pa ˛(1 − ı)Aıa (Lon + (1 − )V )−ı ) = 0 (16)
ing of household-level agricultural decisions will clarify the role of C pc
these mechanisms and help improve the generalizability of future ˇ
studies. UV = [−pv + pa ˛(1 − ı)(1 − )Aıa (Lon + (1 − )V )−ı )] = 0 (17)
C
In spite of these caveats, our results provide clear evidence that 
ˇ p

a 1−ı
the targeting of PES contracts matters, and that allocation mech- UAa = ˛ıAı−1
a ( Lon + (1 −  )V ) ) =0 (18)
anisms based on revealed opportunity costs – such as an auction C pc
– may result in less leakage and better livelihood outcomes that Households allocate labor to own production up to the point
posted price schemes. As our results have shown, careful con- where the marginal productivity of on-farm labor is equal to the
sideration of the context during the design phase of a new PES ratio of the off-farm wage to the value of agricultural output. The
program or policy is important for anticipating unintended land marginal productivity of the last unit of land allocated to agri-
use spillovers or negative livelihood consequences. cultural production is zero, and households apply the variable
input until the cost of an additional unit is equal to the value in
agricultural production that it generates. Two marginal rates of sub-
Appendix. stitution are also useful for interpreting household behavior in the
status quo:
An agricultural household model
ıU/ıLl ω
= (19)
We formalize an agricultural household’s response to a pay- ıU/ıC pc
ments for environmental services contract. Agricultural households
ıXa /ıLon ω
maximize utility from leisure (Ll ) and consumption (C). Consump- = (20)
ıXa/ıV pv
tion is generated through agricultural production and wages earned
in off-farm labor. The price for consumption is pc . Agricultural out- Intuitively, households trade off leisure for consumption at the real
put (Xa ) is a function of land (Aa ), on-farm labor (Lon ) and a variable off-farm wage rate. To hold agricultural production constant, the
input (V) (e.g. fertilizer). The latter is not essential for the produc- marginal rate of substitution between on-farm labor and the vari-
tion, can only be acquired by paying cash (i.e. we assume there is able input is equal to the ratio of the wage to the price of the variable
no credit available). input.
Households are endowed with a fixed amount of land (A) and
labor (L). Land can be used for the production of agricultural output Maximization under payments for environmental services
(Aa ). Households may also dispose of idle land (Ai ), and we assume
that the land constraint is non-binding. Wages paid in the off-farm Households are offered a payments for environmental services
labor market are the only way for households to access liquidity, contract that rewards tree production. Tree production is also
which can be spent on the acquisition of variable inputs for agricul- described by a Cobb Douglas function, that relies only on the input
tural production or put toward consumption. Labor can therefore of land and labor:
be allocated to own production (Lon ), off-farm casual labor (Loff )  1−
and leisure (Ll ). Households therefore maximize utility subject to Xt (At , Lt ) = At Lt (21)
the following constraints: With the introduction of PES, the household’s new maximization
problem is:
A = Aa + Ai (10) 1 
max U = ˇ ln (pa Xa (Aa , Lon , V ) + wL − wLl − wLon − pv V )
L = Lon + Loff + Ll (11) pc
1 
pc C = pa Xa + wLoff (12) + ˇ ln (pesX t (At , Lt ) − wLt ) + (1 − ˇ)lnLl (22)
pc

We assume constant elasticities of substitution in utility and The first order conditions now reflect the marginal utility of labor
production. For the production of crops and trees we assume and land allocated to the tree production.
a Cobb–Douglas function with technologies ˛ and  and out- ˇ
 −w  1−ˇ
put elasticities of land and labor ı and , respectively. On-farm ULl = + =0 (23)
C pc Ll
labor is essential to production, such that Lon > 0, and on-farm
 B.K. Jack, E. Cardona Santos / Land Use Policy 63 (2017) 645–658 657

ˇ
1  Table A.1 (Continued)
ULon = (−w + pa ˛(1 − ı)Aıa (Lon + (1 − )V )−ı ) = 0 (24)
C pc Baseline Endline Difference p-value

ˇ 1
 (1) (2) (3)
 −
ULt = (−w + pes (1 − )At Lt ) = 0 (25) Minutes from home to field 22.377 22.488 0.68
C pc
[22.310] [22.604]

ˇ
  Cash crops (0/1) 0.820 0.828 0.06
UV = −pv + pa ˛(1 − ı)(1 − )Aıa (Lon + (1 − )V )−ı ) = 0 [0.385] [0.377]
C Stated land constraint (0/1) 0.037 0.034 0.24
(26) [0.189] [0.182]

ˇ
p  Past borrowing (0/1) 0.309 0.311 0.74
a 1−ı [0.463] [0.464]
UAa = ˛ıAı−1
a ( Lon + (1 −  )V ) ) =0 (27)
C pc Age of the participant 38.313 38.291 0.91

ˇ pes
 [15.956] [15.767]
−1 1− Female participant 0.487 0.488 0.94
UAt = At Lt =0 (28)
C pc [0.500] [0.500]
Months of food shortage 4.201 4.159 0.11
The comparative statics for labor allocation are similar for the [2.174] [2.122]
scenario without PES. Households will still allocate labor to agri- Prior tree planting (0/1) 0.494 0.488 0.28
cultural production until its marginal productivity equals the ratio [0.501] [0.500]
Prior contact with NGO (0/1) 0.286 0.294 0.15
between off-farm wage, and the variable input will still be used
[0.453] [0.456]
until its marginal value in terms of agricultural production equals Risk preferences (1–3)b 2.135 2.121 0.21
its cost per unit. However, after the implementation of the PES pro- [0.928] [0.931]
gram, households will also allocate labor to tree production until its Time preferences (1–6)b 3.287 3.322 0.18
marginal productivity equals the ratio of the off-farm wage to the [2.181] [2.187]
Mistrusts outsiders (1–3) 1.858 1.840 0.04
payment per tree planted (Eq. (31)). The labor demand functions [0.760] [0.755]
derived from the first order conditions of the utility maximization Willingness to try tech (1–3) 1.928 1.936 0.45
problem are described as follows: [0.880] [0.879]
Asset index 0.880 0.875 0.68
1 − ˇ pc
Ll∗ (pc , w, C) = C (29) [0.988] [0.982]
ˇ w Observations 433 408
p 1/ı Notes: Means are reported for the baseline and endline samples with standard devi-
∗ a
Lon (pa , w, Aa , V ) = Aa ˛(1 − ı)(1 − ) −V (30) ations in brackets. Difference in means calculates p-values from t-tests for equal
w means. See Table 1 for a description of the variables.
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Lt∗ (pes, w, At ) = At (1 − ) (31) References
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