Working Paper: NBER ID: w18740
Authors: Lee J. Alston; Krister Andersson; Steven M. Smith
Abstract: 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.
Keywords: Payment for Environmental Services; Transaction Costs; Environmental Services; Carbon Sequestration; Biodiversity; Watershed Services
JEL Codes: Q15; Q54; Q57; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transaction costs for carbon sequestration (Q52) | effectiveness of PES programs (J68) |
| transaction costs for biodiversity services (Q57) | effectiveness of PES programs (J68) |
| transaction costs for watershed services (Q26) | effectiveness of PES programs (J68) |
| transaction costs for carbon sequestration (Q52) | difficulties in monitoring and enforcement (P37) |
| transaction costs for PES schemes (P22) | delivery of environmental services (Q56) |
| unclear property rights (P14) | transaction costs for PES schemes (P22) |
| actual performance of PES programs (H43) | need for experimentation (C90) |