Payments for environmental services: Coasian transactions or something else?

Abstract

Payments for environmental services (PES) are based on the beneficiary-pays r ather t han the polluter-pays principle. In this paper we argue that this is a key factor for identifying what ecosys-tems are amenable to PES. We build a general equilibrium framework to identify what ecosystems are amenable to PES as an efficient s olution. In economies where society has a higher level of environmental responsibility and produces a low level of alternative land services, income efficient transfers cannot be financed with voluntary p ayments. Therefore PES programs must be seen as environmental subsidies (to environmental services providers) and must be combined with a user fee (paid by environment users). We use Costa Rica’s Payments for Environmental Services pro-gram (PSA) to illustrate our findings. We find that the efficient payments for forest conservation are higher than the value reported by Pagiola (2008). Implementing an efficient s ystem would mean a 4.15-fold increase in payments for forest conservation.