Trees on farms provide environmental benefits to society and improve agricultural productivity for farmers. We study incentive schemes for afforestation on farms through the lens of contract theory, designing conditional cash transfer schemes that encourage farmers to sustain tree growth.

We capture the tree growth process as a Markov chain whose evolution is affected by the agent’s choice of costly effort. The principal has imperfect information about the agent’s costs and chosen effort, and wants to find the minimal payments that maximize long-run tree survival