The structure of an environmental transaction: The debt-for-nature swap

The structure and occurrence of debt-for-nature swaps are examined empirically. Contracts executing debt-for-nature swaps are studied to assess the role of transaction costs in determining how these agreements are structured. The emerging contract form is a product of weak enforcement of legal claims to environmental resources in developing countries, high costs for delineating and monitoring environmental outcomes, and nominal government ownership of the resources involved. The occurrence of swaps in individual countries is significantly related to host country attributes, including the presence of tropical land and threatened species, democratic political institutions, and large debt burdens.