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Analyzes economic impacts of environmental service payments, highlighting trade-offs in agriculture and prices.
This paper develops a general equilibrium model with involuntary unemployment to analyze the macroeconomic effects of payments for environmental services (PES) in a developing economy. Environmental services are endogenously produced through land retirement and valued by households, so that PES emerge as the equilibrium price of environmental quality. The model highlights a structural trade-off: stronger environmental preferences increase environmental services but reduce agricultural production and raise food prices. The main effects of PES operate through sectoral reallocation and relative price adjustments. These results qualify the double dividend hypothesis, showing that even efficiently valued PES may entail significant short-term economic costs.
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Piluso et al. (2026) studied this question.
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