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Payment for Environmental Services: Hypotheses and Evidence


  • Lee J. Alston
  • Krister Andersson
  • Steven M. Smith


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.

Suggested Citation

  • Lee J. Alston & Krister Andersson & Steven M. Smith, 2013. "Payment for Environmental Services: Hypotheses and Evidence," NBER Working Papers 18740, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18740
    Note: DEV EEE POL

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    Cited by:

    1. Andersson, Krister P. & Smith, Steven M. & Alston, Lee J. & Duchelle, Amy E. & Mwangi, Esther & Larson, Anne M. & de Sassi, Claudio & Sills, Erin O. & Sunderlin, William D. & Wong, Grace Y., 2018. "Wealth and the distribution of benefits from tropical forests: Implications for REDD+," Land Use Policy, Elsevier, vol. 72(C), pages 510-522.
    2. Ward, Patrick S. & Mapemba, Lawrence & Bell, Andrew R., 2021. "Smart subsidies for sustainable soils: Evidence from a randomized controlled trial in southern Malawi," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    3. Fauzi, Akhmad & Anna, Zuzy, 2013. "The complexity of the institution of payment for environmental services: A case study of two Indonesian PES schemes," Ecosystem Services, Elsevier, vol. 6(C), pages 54-63.
    4. Cloé Garnache & Scott M. Swinton & Joseph A. Herriges & Frank Lupi & R. Jan Stevenson, 2016. "Solving the Phosphorus Pollution Puzzle: Synthesis and Directions for Future Research," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(5), pages 1334-1359.
    5. Chabé-Ferret, Sylvain & Voia, Anca, 2019. "Are Grassland Conservation Programs a Cost-Effective Way to Fight Climate Change? Evidence from France," SocArXiv cx8j6, Center for Open Science.
    6. Do, Trong Hoan & Vu, Tan Phuong & Nguyen, Van Truong & Catacutan, Delia, 2018. "Payment for forest environmental services in Vietnam: An analysis of buyers’ perspectives and willingness," Ecosystem Services, Elsevier, vol. 32(PA), pages 134-143.
    7. Benra, F. & Nahuelhual, L. & Felipe-Lucia, M. & Jaramillo, A. & Jullian, C. & Bonn, A., 2022. "Balancing ecological and social goals in PES design – Single objective strategies are not sufficient," Ecosystem Services, Elsevier, vol. 53(C).
    8. Teo Dang Do & Anchana NaRanong, 2019. "Livelihood and Environmental Impacts of Payments for Forest Environmental Services: A Case Study in Vietnam," Sustainability, MDPI, vol. 11(15), pages 1-22, August.
    9. Gary D. Libecap, 2014. "Addressing Global Environmental Externalities: Transaction Costs Considerations," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 424-479, June.
    10. Ola, Oreoluwa & Menapace, Luisa & Benjamin, Emmanuel & Lang, Hannes, 2019. "Determinants of the environmental conservation and poverty alleviation objectives of Payments for Ecosystem Services (PES) programs," Ecosystem Services, Elsevier, vol. 35(C), pages 52-66.
    11. Chervier, Colas & Costedoat, Sébastien, 2017. "Heterogeneous Impact of a Collective Payment for Environmental Services Scheme on Reducing Deforestation in Cambodia," World Development, Elsevier, vol. 98(C), pages 148-159.
    12. Sandi Matsumoto & Melissa M. Rohde & Sarah Heard, 2019. "Policy Note: "Economic Tools to Achieve Groundwater Sustainability for Nature: Two Experimental Case Studies from California"," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-15, October.
    13. Bennett, Drew E. & Gosnell, Hannah, 2015. "Integrating multiple perspectives on payments for ecosystem services through a social–ecological systems framework," Ecological Economics, Elsevier, vol. 116(C), pages 172-181.
    14. Martin, Paul V., 2018. "Managing the risks of ecosystem services markets," Ecosystem Services, Elsevier, vol. 29(PB), pages 404-410.
    15. Hao Wang & Sander Meijerink & Erwin van der Krabben, 2020. "Institutional Design and Performance of Markets for Watershed Ecosystem Services: A Systematic Literature Review," Sustainability, MDPI, vol. 12(16), pages 1-26, August.
    16. Li, Zhi & Liu, Pengfei & Swallow, Stephen K., 2022. "The performance of multi-type environmental credit trading markets: Lab experiment evidence," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    17. Campanhão, Ligia Maria Barrios & Ranieri, Victor Eduardo Lima, 2019. "Guideline framework for effective targeting of payments for watershed services," Forest Policy and Economics, Elsevier, vol. 104(C), pages 93-109.

    More about this item

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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