For many years, Costa Rica developed an ambitious policy for biodiversity conservation. Most of remaining primeval forests are now part of the 20% of the national territory currently included in protected areas. The following step is a new law that aims at providing subsidies to land owners that commit themselves to maintain forest ecosystems on part of their tenures especially in buffer areas (in the periphery of protected areas). This paper studies the level and the shape of incentives that can lead farmers to comply with government objectives.

In a first part, the issue is modeled in a principal-agent framework. The government (or an environment protection agency) maximizes a welfare function that depends on the conserved area, the transfer amount and the welfare of the farmers in the buffer area. The farmers have a utility function depending on the cultivated area and the transfer amount. The problem is mainly an adverse selection issue. It is assumed that the opportunity cost of the farmers that renounce to cultivate, depends upon land productivity which is imperfectly known by the government. It is moreover admitted that there is an inverse relation between the agricultural productivity of the land and the biodiversity existing in the forest. An optimal contract is specified through the level of transfer (T*) and the conserved area (A_n*).

In a second part, the more adequate instruments to implement optimal contract are studied. Two kinds of transfer are especially studied: direct income to farmers that freeze part of their tenure and subsidies to inputs that help farmers to intensify the production by substituting inputs to land. In the latter case, the free access issue must be solved (in our case study, most part of the buffer area is indigenous reserve and nobody can come and settle there). It is shown that the optimal contract can be implemented through a transfer mix between direct income and subsidies to inputs.