as primary forest – the most biodiverse and carbon-dense form of forest – thus raising the ecological cost of deforestation far beyond the already important forest functions of carbon sequestration, erosion control, and hydrological regulation. Substantial conversion from natural lands to those with intense human use has also occurred in areas of Mexico that are ecologically critical but are not classified by the FAO as forest, such as arid zones.

To respond to deforestation and degradation,<sup>5</sup> as well as biodiversity losses, Mexico’s National Forestry Commission (CONAFOR, for its acronym in Spanish) has implemented a national payments for environmental services program that began in 2003 and continues to the present time. The main federal program provides financial incentives to landowners with the goal of reducing loss of existing land-cover in areas important for watershed protection and biodiversity conservation. The program offers five-year contracts to either individual or common-property landowners and finances the cost of hiring technical advisors to assist in developing a management plan. The main PES program is financed by the federal government (using revenues from sources including an urban water tax) and special programs (not included in this analysis) also include co-financing by direct beneficiaries of the ecosystem services. Participants who comply with their contracts receive annual payments for each of the five years of the contract.

Enrollment in the program is dominated by land that is in collective tenure (called _ejidos_ and _comunidades indigenas_ ), although individual households may also participate. Collective tenure existed in Mexico prior to the colonial era (Knight 1986). However, the current system was created during the 1917 Agrarian Reform, and continues to have an important presence on the landscape today – over half of the land in rural Mexico falls within this classification (de Janvry et al. 1997, Fox 2007). During the period that we analyze, 62% of recipients and 90% of area enrolled was from common properties. For this reason, we focused our household and community data collection efforts on ejidos and comunidades, although we do include private properties in the environmental analysis.

Annual payments are conditional on maintaining existing land-cover and having completed voluntary forest or biodiversity conservation management activities, which CONAFOR verifies through satellite imagery and/or field visits. In principle, a loss of forest cover or a change in land use results in either a contract cancellation (if changes were intentional) or a decrease in payments proportional to the reduction in area (if changes were due to natural causes).<sup>6</sup> Recipients must complete activities according to their submitted forest or land management plan and annual program rules.

# _Targeting and Payment Scheme, Program History_

Mexico’s PES program has national presence. As shown in **Figure 1** , the states with the largest numbers of program recipients across the program’s history are Chiapas, Oaxaca, Veracruz, and Yucatán, each having over 400 recipients. Oaxaca dominates the area enrolled in the program over time ( **Figure 2** ), with over 1.3 million hectares. This is due to a combination of having high numbers of recipients and large areas of eligible forest – acceptance rates in Oaxaca are not significantly higher than those in neighboring states.

> 5 The land is said to have experienced deforestation when other land uses replace forest, such as agriculture, mining, or urban development. Degradation often precedes deforestation. Degradation is a gradual process through which a forest's biomass declines, its species composition changes or its soil quality declines.

> 6 Quantitative information on the number of contracts cancelled on a yearly basis is not available. Conversations with CONAFOR officials suggest that reduction and cancellation of payments occurs in only a small (but positive) number of cases.

7