Wetland paddy agro-ecosystems are recognized as important human-made wetland systems. Realizing that paddy lands are important ecological systems, the state of Kerala in southern India passed an act in 2008 preventing their conversion to other uses. The state provides subsidies and production bonuses to encourage paddy farmers and imposes penalties for non-compliance. However, the economic benefits associated with the conversion of paddy lands are considerably higher than the current subsidies and bonuses. As such, the conversion of paddy lands continues unabated despite the incentives and disincentives provided in the act. This study examines the ecological rationale for preventing paddy land conversion through a comparative assessment of the ecological health of paddy lands against that of lands with competing uses. Ecological health is assessed in terms of the amphibian population—specifically, frog abundance and diversity across different land uses, as frogs are considered bio-indicators of ecological health. The results reveal that the conversion of paddy lands adversely affects the survival of amphibians, especially frogs, thus emphasizing the role of paddy lands in maintaining the ecological health of a region. The study also provides empirical evidence for creating “Pigouvian subsidies” or ecological incentives for paddy farmers.