Submitted to Australia Centre for International Agricultural Research, (ACIA))
Abstract: This article focuses on the program of Ecological Afforestation on barren lands, degraded arable lands, harvested sites and sloped farmland in Sichuan, China. Farmers were given the opportunity to propose afforestation activities for which they would be paid an specified amount. These bids and predictions of the expected environmental benefits to be generated were used to assess the net benefit of each proposal. Most features of the bidding scheme were successfully implemented and improvements in the economic efficiency of the afforestation scheme were observed. The market-based approach is demonstrated to be a practical way forward for Ecological Afforestation in China. However, the bidding scheme is shown to increase the transaction costs of achieving the policy goal, by about 30 per cent compared to the previous ‘command and control’ regime. Finding effective methods to reduce transaction costs will be key to successful implementation of the Ecological Afforestation bidding scheme.
