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all subsidies, but there still would be no incentive to deforest beyond thispoint because there is no incentive to do so in the absence of the subsidy.Another alternative would be to adopt a strategy currently in use inBrazil known as the ICMS ecológico. The ICMS is a tax on merchandiseand services, and in certain states, some of this money is refunded to municipalitiesaccording to the extent to which they meet ecological goals,such as watershed protection and forest conservation. Essentially a paymentfor the provision of ecological services, it has proven quite effective.There is no reason a similar approach could not be used at a globallevel. Initially perhaps, it could be directed toward biodiversity hotspots,25 areas round the world identified by scientists that contain an unusuallylarge number of species and are seriously threatened, with 70% ormore of the area destroyed. Given the importance of biodiversity in maintainingecosystem resilience and function, it is likely that hotspots offer anunusually large amount of ecosystem services. Similar to the ICMSecológico, a global pool of money could be distributed to the countries thatharbor these hotspots according to how well they meet well-defined conservationcriteria. It would then be up to the individual countries to determinehow best to meet these criteria, thereby allowing micro-freedomto achieve macro-control.There are several features that contribute toward the feasibility of suchinternational subsidy schemes. First, transaction costs are minimized. Inexpensivesatellite photos are capable of providing increasingly accurateestimates of annual deforestation, so monitoring costs would be small. 10While interpretation of photos may not be an exact science, computeranalysis can at least make it a consistent one, in which case quantitativeprecision is unnecessary. This approach is currently being used to monitorcompliance with land use laws in Mato Grosso, Brazil. A subsidy canthus reflect the amount of forest preserved, though an exact dollars-perhectarefigure for the subsidy may not be accurate.Second, it would not be necessary at the international level to pinpointwho is deforesting. Enforcement and accountability are not major problems,since funds would be disbursed only after conservation occurs; ifdeforestation is not slowed, no money is spent. Third, national sovereigntywould remain intact, as no country would be under any obligationto change behavior. Finally, a major problem in many less developedcountries is that they lack the institutions and resources to enforce environmentalpolicy, especially in such vast areas as the Amazon. A subsidycould provide both the incentive and resources for local and nationalChapter 24 Efficient Allocation • 47310 A. Almeida and C. Uhl, Brazil’s Rural Land Tax: A Mechanism to Promote Sustainable LandUse in Amazonia, Land Use and Policy 12:105–114 (1995).