Agency problems and rent-seeking in the program of hydrological environmental servicies in Mexico

Abstract

It uses a modified Von Thünen’s model of land use change to analyze how and why interest groups and rent seekers can influence the design and implementation of the Payment for Hydrological Environmental Services in Mexico (PWS) providing strategic information to the regulator undermining their goal of providing economic incentives to prevent deforestation in areas where there are serious problems with water but where forestry is not competitive with agriculture and livestock. It is argued that investment in lobbying and rent appropriation in the design phase is a function of expected income accruing to the stakeholders. If they are \"insured\" they seek to invest in the design phase, but if not, they will in the implementation phase of PSAH thus increasing income wasted by society in unproductive activities. As a classic problem of principal-agent theory applied to an environmental services market it follows the recommendation of the establishment of mechanism that align regulator’s objectives with interest groups and rent seekers ones in order to meet PWS’ objective with economic efficiency criteria.