Optimal contract length for biodiversity conservation under conservation budget constraint

•Both short and long contracts are used to conserve biodiversity in private forests.•Short contracts are used for managed stands and long contracts for unmanaged stands.•Budget type affects the quantity and quality of stands available for contracting.•Transactions costs reduce the number of short conservation contracts.•A budget increase results in a more widely use of long contracts.

We examine the optimal length of a contract period in a conservation program with payments for ecosystem services aiming at protecting biodiversity on privately owned forests. The government chooses the number of stands and the length of contracts so as to maximize biodiversity benefits under a binding conservation budget. We examine the implication of two alternative budgets: a separate budget for each period (periodic budget) or one budget that to be used in all periods (intertemporal budget). The impact of the budget type shows up in the fact that with intertemporal budget choice set is larger and more high quality stands are available for contracting. Based on theoretical characterization we conduct a numerical landscape-level analysis. We find that both short and long conservation contracts are used to protect privately owned forest land. Transactions costs tend to reduce the number of short contracts. A budget increase results in a use of longer contracts.