Ecosystem services are functions provided by healthy ecosystems, including watershed protection, carbon sequestration, and biodiversity conservation. Demand for ecosystem services is growing significantly as the global economy has increased more than six-fold, but nearly two thirds of the world's ecosystem services are in decline. Payments for environmental services (PES) programs aim to address this challenge by compensating land owners in exchange for land use practices that protect or enhance these services. PES programs have generated significant excitement among policymakers in developing countries because of their potential to enhance ecosystem services cost-effectively while also potentially increasing incomes for poor rural populations. However, ecosystem service payments are not guaranteed to increase incomes of the poor. Many economists disagree with the view that PES programs would increase incomes (Wunder 2007). Unless farmers shift their income-generating activities during the payment period, they may have to return to their original land use practices once payments end, thus reversing the PES programs' long-term environmental benefits. To date, no study has examined the long-term socioeconomic impacts of PES programs. This proposed project will examine the long-run socioeconomic impacts of China's Grain for Green program, one of the largest PES programs established anywhere in the world. In the program, rural farmers are compensated for a fixed period of time in return for retiring sloped farm land from cultivation and planting tree seedlings instead. While the primary goal is to increase forest cover to reduce soil erosion and flood risk downstream, the program has been promoted in China for its potential to improve incomes for poor rural farmers (e.g., Liu et al. 2008). This project aims to answer the following sets of research questions. a) What are the economic impacts of the program on participating households and how large are they relative to impacts on nonparticipating households? How are the long-run effects different from the short-run effects? b) What mechanisms explain the socioeconomic impacts of the program? How has the program affected households' livelihoods? How have participating farmers restructured their income sources during the payment periods? c) How do the program's socioeconomic impacts vary in response to factors such as farmers' initial levels of poverty, market accessibility and farmers' educational levels? d) How do the impacts differ compared to socioeconomic impacts of PES programs in other developed and developing countries? To evaluate these complex research questions, I will use an innovative combination of data sources: household survey data on program impacts; village survey data; and spatial remote-sensing data on market and biophysical conditions. Building on my earlier studies of the program, I will design and implement a survey of approximately 360 households from three provinces in western China. The coupled data will be analyzed using rigorous econometric framework to quantify the long-term impact and assess the sources of impact heterogeneity. The findings from this research will be compared to impact studies of PES programs in other countries, including the U.S. and Japan. The findings will be disseminated through academic journals, policy briefs, seminars and conferences in Japan and elsewhere.