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Payment for Environmental Services: Hypotheses and Evidence

  • Lee J. Alston

    ()

    (Institute of Behavioral Science, University of Colorado, Boulder, Colorado 80309
    Department of Economics, University of Colorado, Boulder, Colorado 80309
    National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • Krister Andersson

    ()

    (Institute of Behavioral Science, University of Colorado, Boulder, Colorado 80309
    Department of Political Science, University of Colorado, Boulder, Colorado 80309
    Centro de Investigaci�n Sociedad y Pol�ticas P�blicas, Universidad de los Lagos, Santiago 8370321, Chile)

  • Steven M. Smith

    ()

    (Institute of Behavioral Science, University of Colorado, Boulder, Colorado 80309
    Department of Economics, University of Colorado, Boulder, Colorado 80309)

The use of payment for environmental services (PES) is not a new type of contract, but PES programs have become more in vogue because of the potential for sequestering carbon by paying to prevent deforestation and degradation of forestlands. 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 to 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 are needed to gain a better outlook on what elements support effective delivery of environmental services.

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File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-resource-091912-151830
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Article provided by Annual Reviews in its journal Annual Review of Resource Economics.

Volume (Year): 5 (2013)
Issue (Month): 1 (06)
Pages: 139-159

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Handle: RePEc:anr:reseco:v:5:y:2013:p:139-159
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