Foreign transfers and tropical deforestation: What terms of conditionality

The international community considers the possibility of using aid as an instrument to improve natural resource conservation in developing countries. By making the amount of transfers dependent on the efforts of the recipient countries to improve conservation, appropriate incentives can be given. We propose a transfer function in which developing countries are linearly rewarded for having a positive stock of forest, and where the amount of donations is negatively related to the rate of deforestation. This transfer function enables the international community to improve long-term forest conservation as well as the rate of deforestation during the adjustment period.