Conservation and welfare: Toward a reconciliation of theory and facts

The establishment of protected areas is a widespread practice designed to curb environmental degradation. However, it is often criticized as limiting the expansion of agriculture and natural resources extraction, especially in poor regions. Others maintain that conservation can increase welfare if the opportunity cost of conservation is less than the benefit generated by alternative uses of the land. In the economic literature, theoretical results on the relation between conservation and welfare diverge. The main objective of this paper is to reconcile the theoretical and the empirical results. We develop and test a theory explaining the relation between conservation, ecotourism and welfare. A distinctive feature of the model is that conservation allows to develop an ecotourism sector, which generates an alternative source of income at the local level. We also take into account the effect of geographical features in the land use decision-making process. The theoretical results are tested on Nepalese data. We find that conservation associated with ecotourism development is positively related to local welfare. Our theoretical results are consistent with the empirical evidence.