Payment for Environmental Services: Hypotheses and Evidence
The use of Payment for Environmental Services (PES) is not a new type of contract but they have become more in vogue because of the potential for sequestering carbon by paying to prevent deforestation and degradation of forest lands. We provide a framework utilizing transaction costs to hypothesize which services are more likely to be provided effectively. We then interpret the literature on PES programs to see the extent to which transaction costs vary as predicted across the type of service and assess the performance of PES programs. As predicted we find that transaction costs are the least for club goods like water and greatest for pure public goods like carbon reduction. Actual performance is difficult to measure and varies across the examples. More work and experimentation is needed to gain a better outlook on what elements support effective delivery of environmental services.
Forthcoming in the Annual Review of Resource Economics DOI: 10.1146/annurev-resource-091912-151830. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. We thank an anonymous reviewer for comments. Lee J. Alston acknowledges support from the National Science Foundation Grant #OISE 1157725) Krister Andersson would like to acknowledge financial support from the National Science Foundation, grants # DEB-1114984, and BCS-0527165.
Lee J. Alston & Krister Andersson & Steven M. Smith, 2013. "Payment for Environmental Services: Hypotheses and Evidence," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 139-159, 06. citation courtesy of