Addressing the Hidden Costs of Forest Conservation

―The reason that some activities are not the subject of contracts is exactly the same reason why some contracts are commonly unsatisfactory – it would cost too much to put the matter right.‖ (1). Fifty years ago, Ronald Coase articulated the problems with the implementation of government policies to reduce social costs concluding that sometimes the transaction costs to ―put the matter right‖ exceed the benefits. Such transaction costs help explain why past policy efforts have failed to tame the powerful forces behind tropical forest loss (2,3). We argue that more attention to transaction costs would benefit the institutional design of a new global program intended to combat tropical deforestation in developing countries, known as REDD+ (hereafter REDD for "Reducing Emissions from Deforestation and Forest Degradation and the Role of Conservation, Sustainable Management of Forests and Enhancement of Forest Carbon Stocks in Developing Countries"). The existing institutional design for REDD relies exclusively on host-country government interventions, but to reduce transaction costs and thereby improve the likelihood of success, we propose that REDD embrace a more diversified approach.