From the SelectedWorks of Rohit Jindal

January 2012
Payments for Ecosystem Services (PES): evolution
towards efcient and fair incentives for
multifunctional landscapes
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1

AnnualReviewofEnvironmentandResourceshttp://www.annualreviews.org/toc/energy/37/1
Payments for Environmental Services: evolution
toward efficient and fair incentives for multifunc
tionallandscapes
Meine van Noordwijk
1
, Beria Leimona
2
, Rohit Jindal
3
, Grace B. Villamor
4
, Mamta Vardhan
5
, Sara
Namirembe
6
,DeliaCatacutan
7
,JohnKerr
8
,PeterA.Minang
9
andThomasP.Tomich
10

1
WorldAgroforestryCentre(ICRAF),Bogor16880,Indonesia;email:m.vannoordwijk@cgiar.org
2
WorldAgroforestryCentre(ICRAF),Bogor16880,Indonesia;email:l.beria@cgiar.org
3.
BantingPostdoctoralFellow,DepartmentofResourceEconomicsandEnvironmentalSociology,UniversityofAlberta,
Edmonton,T6G2H1Canada;Email:jindal@ualberta.ca
4.
CenterforDevelopmentResearch(ZEF),UniversityofBonn,GermanyandWorldAgroforestryCentre(ICRAF);email:
gracev@unibonn.de
5.
InstituteforSustainableEnergy,EnvironmentandEconomy,UniversityofCalgary,Calgary,Alberta,CanadaT2N1N4;
email:mvardhan@ucalgary.ca
6.
WorldAgroforestryCentre(ICRAF),Nairobi,Kenya;email:s.namirembe@cgiar.org
7.
WorldAgroforestryCentre(ICRAF),Hanoi,Vietnam;email:d.c.catacutan@cgiar.org
8.
DeptofCommunity,Agriculture,RecreationandResourceStudies,MichiganStateUniversity,EastLansing,MI48824;
email:jkerr@msu.edu
9.
WorldAgroforestryCentre(ICRAF),Nairobi,Kenya;email:a.minang@cgiar.org
10
AgriculturalSustainabilityInstitute,
UniversityofCalifornia,Davis,California956168523;email:tptomich@ucdavis.edu
Abstract
Payments for environmental services (PES), or nonprovisioning ecosystem services, target
alignment of microeconomic incentives for land users with meso and macroeconomic
societalcostsandbenefitsoftheirchoicesacrossstakeholdersandscales.Theycaninterfere
with or complement social norms and rightsbased approaches at generic (land use
planning) and individual (tenure, use rights) levels, and with macroeconomic policies
influencing the drivers to which individual agents respond. In many developing country
contexts,communityscalefactorsstronglyinfluencelandusersdecisionswhileunclearland
rights complicate the use of marketbased instruments. PES concepts need to adapt.
Multiple paradigms have emerged within the broad PES domain. Evidence suggests that
forms of coinvestment in stewardship alongside rights are the preferred entry point.
CommodificationofESandESmarketsmightevolvelateron,butrequirestronggovernment
regulationtosetandenforcerulesofthegame.Weframehypothesesforwidertestingand
noregretsrecommendationsforpractitioners.
KEY WORDS: Altruism, Ecological economics, Environmental governance, Rightsbased
approaches,Tradeoff
Pleaseciteas:vanNoordwijkM,LeimonaB,JindalR,VillamorG
B,VardhanM,NamirembeS,CatacutanD,KerrJ,MinangPA,
TomichTP,2012.PaymentsforEnvironmentalServices:evolution
towardefficientandfairincentivesformultifunctionallandscapes.
AnnualReviewofEnvironmentandResources37(inpress)
2

Introduction
Theriseofagriculturecoincidedwiththeremarkable
climatic stability of the Holocene
1
, but land use
change and fossil fuel use threaten to get us back to
the wilder fluctuations of the Pleistocene and earlier
periods in the geological history of our planet
2,3
.
Much of agriculture and the dramatic change in
humanpopulationsizeandsocialorganizationthatit
made possible
4
was based on reducing dependency
on natural ecological processes for securing food, by
finding effective technical substitutes to secure
growth and reproduction of plants and animals with
the most desirable properties through
domestication
5
. The culture of land, with
agriculture as its shorthand, was contrasted with
wild and uncontrolled nature. Its key features
apartfromgeneticselectionweremodificationofthe
soil environment by tillage, breaking out of the
constraints of the local nutrient cycle by use of
fertilizers, and controlling pests and diseases by
chemical means
6
. Manipulation of the water balance
by irrigation and drainage, however, involved lateral
flows
7
of water that created new dependencies on
thesurroundinglandanditswatershedservices.
The fossil record of the Neolithic revolution that
started agriculture suggests that it had mixed effects
on human wellbeing when health and quality of life
rather than demographic growth are considered
8
. In
terms of the human brain, it required and further
strengthened the rational, reflective system 2 that
can operate at discount rates that allow investment
in activities that provide yield in a few months time,
balancing with the intuitive, subconscious, direct
system 1 that seeks immediate rewards
9
and
dominatedinourhuntergatherhistory.Thesystem
3 that responds to and shapes social norms co
evolvedwithsocietalorganization.
Aprimarymeasureofthesuccessofagriculturewasa
social segregation when urban development became
possible, as rural labor could be freed for other
activities
10
.Expansionofagriculturealsoimpliedthat
forest, lands beyond the perimeter of the villages,
and nature, land without direct human influence,
declined in area
11
. Urban lifestyles developed, with
different norms, aspirations and expectations.
Ironically,partoftheseexpectationsnowadaysrelate
toareturntomorenaturalformsoffarmingalong
with fairer trade relations
12
and for ecoagriculture
landscapesastargetsforrecreationandleisure
13
.The
dramatic success in increasing the goods that could
be derived from agroecosystems came at a cost for
the regulatory and supportive ecosystem services
14
.
Humankind may currently approach planetary
boundaries of safe operating space
15
: clean water,
clean air, flora and fauna, and more recently the gas
compositionoftheatmospherethataffectsclimate.

Econsandhumans
ThalerandSunstein
16
positedthatwedeal
withtwospecies:EconsandHumans.
Economics,asthetermsuggests,isgoodat
predictingthedecisionsmadebyEcons,but
thescienceofdecisionmakingbyHumans
remainslargelyunexploredterritory,and
needstobuildontheadvancesinpsychology,
neuroscienceandbehavioraleconomicsof
thepasttwodecades.Econsaretheefficient
calculatorsimaginedineconomictheory,able
toweighmultipleoptions,forecastallthe
consequencesofeach,andchooserationally.
Humansareordinarypeople,who,fallwell
shortofHomoeconomicus:theyareneither
fullyrational(asmostanalysesofeconomic
downturnsandcrashesimply)norcompletely
selfish,andtheirtastesareanythingbut
stable.CallingourselvesHomosapiens,
however,stretchestheconceptofwisdom
beyondhowitiscurrentlyunderstood,and
maywellreflectthecognitiveillusionand
overconfidencethatishardwiredinour
brains.TheliteratureonPESwasinitially
focusedonbringingenvironmentalissuesinto
theframeworkofefficiencyorientedEcons,
buthasgraduallyincorporatedmorerealistic
perspectivesonhumanbehaviorandits
abilitytodealcollectivelywiththreatsand
pressures.
3

The urban segment of population started to attach

value to the natural capital and ecosystem services
andregrettedtheirloss;theyevenbecamewillingto
pay moderate amounts of money to have secure
accesstosuchecosystemservices(ES*).Bypaying,
somemight evenfeellessguiltyabouttheir patterns
of consumption and its global consequences. The
social, cultural, political and economic differences
between those able to provide or enhance ES and
those interested in supporting such activities had
become substantial and the interaction required a
framing that referred to both fairness (a system 3
concept) and efficiency (system 2) to bridge that
gap. Analysis of system2 (micro) economics
suggestedthatthediscountratesusedweretoohigh
tojustifyinvestmentsin environmentalqualities that
operate on decadal rather than annual timescales.
Lowering the apparent discount rates might nudge
decisionmakerstowardsdecisionsenhancinghealth,

wealthandhappinesswithgreaterpubliccobenefits,
and as such justified public coinvestment
16
. Dealing
with intergenerational equity and expected scarcity
of global ecosystem functions requires system 3
brain functions that operate at zero or negative
discount rates, complementing the system1 and
system2 functions that had much more time to
evolve
9
. Low or even negative discount rates may
seem surprising to conventionally trained
economists, but the conventional discounted cash
flow analysis assumes complete markets (including
marketsforinsuranceandrisk)aswellasreversibility
of asset transactions. Yet, missing and imperfect
markets, prospects of extinctions and other
BOXMiniglossary
Coinvestment:Investmentacrossassettypes
(capitals)inenhancementofESby
beneficiariesandprovidersofES;examples
canincludeinvestmentinconditional
tenurialsecurityinareasofhighESvalue
(includingecologicalcorridorsor
bufferzones),combinedsocial+human
capitalenhancementininstitutional
development,improvementsofhealth,
educationandinfrastructure
Commodification:Thederivationand
definitionofstandardizedunitsofESthat
canbetradedwithinregulatedmarkets
and/ortheassociationofverifiableESwith
brandedcommodities
Compensation:Governmentmediated
paymentstooffsettheopportunitycosts
for(voluntarilyormandated)foregone
legallyalloweddevelopmentoptionsthat
woulddecreaseESfunctions
Ecosystemservices(ES*):Thebenefitshumans
derivefromecosystems;usuallycategorizedas
provisioning,regulating,culturaland
supportivefunctions(ananthropocentric
conceptthatcanincorporateintrinsicvalue
onlythroughitshumanambassadors)
Environmentalservices(ES):Ecosystemservices
minustheprovisioningservicesforwhich
marketscanbeexpectedtobalancesupplyand
demand
Gigaeconomics:Studyofmanagementoptions
anddecisionmakingonuseand/or
conservationofscarceresourcesatglobal
(supranational)scale
Picoeconomics:Studyofthewaythehumanbrain
(atsynapselevel)processesnewlyacquired
information,memoryandaccumulatedvalue
judgmentsinevaluatingmanagementoptions
anddecisionmaking
Rightsbasedapproach:Developmentapproach
thatbuildsonthebundleofuserightsthat
individualsandcommunitiescanacquirebased
onlegalpluralismandcrossscale
harmonizationofprinciplesandcriteriafor
resourcemanagement,balancingprivateand
publicinterests
4

essentially irreversible contingencies, and prospects

for only limited (if any) substitution among major
asset classes say between some forms of natural
and financial capital mean that some important
resourcesreallywillbescarcerinthefuture,entailing
verycostlyadjustments.
16

Where markets have been generally acclaimed for

linking demand and supply of goods and nudging
producer decisions towards efficient use of
resources,threatstoecosystemservices
14,17
became
associated with market failure and
externalities
18,19,20
. Two types of solutions have
been tried to address this imbalance: 1) to restrict
marketfunctionsongoodsprovisionbyregulationof
resource access to secure conservation of natural
capital and ES*, and 2) to bring market efficiency to
the supply of ES*, by making increased provision of
such services pay at a level that the tradeoffs
between goods and services can be managed at the
leveloffarmerorlandmanager.Thelatterapproach
is conventionally, but not very accurately as we will
see below, described as payments for ecosystem
services or PES. While the regulatory approach is
associated with sticks, the incentivebased
approaches are referred to as carrots with
sermonsas the thirdpolicyinstrument referring to
suasion and the hope that internalization of values
willleadtoselflimitation(system3).
Started some three decades ago in Europe and N.
America
21
,thePESapproachhasbeenadvocatedand
tested in the tropics for over a decade now.
Environmental services in the tropics are
considerably diminished by the development and
spreadoflandusepracticesthatprofitthelanduser,
but reduce the regularity and quality of water flows,
habitat quality of the landscape for globally
threatened biota, carbon storage capacity, and
landscapebeauty
22,23
.Marketbasedinstrumentsthat
make the continued provision of environmental
services (ES) moreprofitable, have become an active
area of experimentation and learning over the past
two decades
24,25,26
, as purely regulatory approaches
that exclude rural populations from forests have a
negative impact by perpetuating forestrelated
poverty
27,28
.

Figure1.PESisoneoffourcategoriesofresponseandfeedbackmechanismsthatallowthosewhoexperience
theESconsequencesofchangesinlandcoverandlanduse,totryandinfluencethegenericdrivers(A1
and B1) or actors/agents (A2 and B2) of land use change in specific places to modify behavior and
decisions, via spatial regulation and rights (A, sticks) or economic incentive structures (B, carrots); the
suasion(sermon)categorymodifiestheresponseofactors/agentstodrivers(modifiedfrom28)
5

PES is one of multiple feedback mechanisms by

whichstakeholdersaffectedbychangesinlanduse
can try to influence the agents/actors directly
deciding on transformations of the landscape,
and/or the underlying driving forces to which they
respond
29
. A broad categorization (Figure 1)
distinguishes rules/rightsbased approaches from
economic incentive approaches, each with entry
pointsattwoscales.Afurtherdistinctioncanbethe
degreetowhichtheresponseandfeedbackoptions
arechanneledthrough public and/or private sector
entities. In this classification and figure, PES stands
for B2 approaches targeting the microeconomic
level of decision making. Its effectiveness is
contingent on the way it interacts with macro
economicincentivestructures(B1)andrightstouse
land (A1, A2). The language of PES refers primarily
to the efficiency of a quid pro quo (money for
services) but, as we will see in this review, the
fairnesssidedeservesatleastequalattention,asis
gradually rediscovered for the rest of the
economy
30
.Thenatureofboththequidandthequo
is often not as clear as it appears to be, with
additionality,leakageandpermanenceconcerns
31,32

that straddle temporal and spatial scales and

requirecomplementarytypesofeconomicanalysis.
TheemergingPESliteraturedealswithfivescalesof
economic analysis, only two of which (micro and
macro)havebeenconventionallystudied:
Picoeconomics
33
(or neuroeconomics
underpinning behavioral economics): individuals
and their brain synapses (pico) that involve in
decision making, interpretation of observations
and construction of perceived causal
mechanisms,
Microeconomics: household, farm enterprises
with the cash flows and investment issues at
thatscale,asinfluencedbymarketfunctionand
thetotalityoftaxes,subsidiesandregulations,
Mesoeconomics
34
: landscape, community and
localgovernance scales as wellas privatesector
actors where determinants of ecosystem
services interact with the paradigms of
integratedruraldevelopment,
Macroeconomics: nation states as part of
regional cooperation arrangements, at the
interface of world markets, political ambitions
for development and the economic decisions of
subnational actors, responding to taxes,
subsidies, regulations and public investment in
physicalinfrastructure,
Gigaeconomics:earthsystemmanagement,and
the rediscovery that humans can care about
their broader context if appropriately primed
and motivated, by concepts such as
footprint
35
.
PESdiscussionsusuallyfocusontheroleofpositive
incentives (carrots) at the interface of meso and
micro economics, but the involvement of other
scales is increasingly recognized, as isthe close link
with sticks and sermons (or suasion) targeting
picoeconomics and the putative system 3. Yet,
the macroeconomic context of national
development and, increasingly, the gigaeconomic
scaleofglobalissuesareofdirectrelevanceaswell.
PES is usually framed within an environmental
economics framework that accepts the status quo
of macro and microeconomic analyses and
associated policies, but aims at internalizing the
environmental externalities of current decision
making. In contrast, the ecological economics
tradition has articulated more fundamental
critiques of status quo and has been more open to
the emerging pico, meso and gigaeconomic
scales,thatmaysetnormative(sustainability)and
pragmatic constraints to micro and macro
economic scales. Within the environmental
economicsframingtheupsanddownsoftheglobal
economy (at macrogiga scales) with more than
proportional impacts on carbon markets have
beenamajorconcern.
As PES praxis has evolved, its relation with theory
haschanged.While most ofPESisstill perceivedin
6

a decision support system mode of natural

resource management, where better informed
managers can take better decisions and PES can
involve negotiations of prices and contract details
but not of its fundamentals, the more complex
reality may be better understood if approached
from a negotiation support perspective
36,

37

where multiple knowledge and value systems

interact in shaping a negotiation platform and its
outcomes. Further complications derive from the
way temporal scales are included in the analysis:
beyond a sustainability time scale that emphasizes
persistence, a sustainagility time scale
38
may be
needed,thatbalancesthiswithacontinuedchange
perspective
39
.
Asabroaddelineationofthetopicsforthisreview,
we will discuss emerging PES praxis in the context
of these five scales of economic analysis, the five
capitals (assets) of the livelihoods approach
40

(although alternative formulations

41
also have
foundfollowers),andthreeaspectsofhumanbrain
function(systems1,2,and3).Inourview,theseall
need to be reconciled in order to understand how
individual behaviors and choices interact with local
actions, their global consequences and the
opportunities for effective feedback mechanisms
(Figure 2). Payments for ecosystem services can be
conceived and implemented by a government
mediated institution without explicit reference to
markets. Adjustments of levels of compensation to
what taxpayers are willing to afford will over time
provide a coarse feedback mechanism adjusting
supply to demand. Much of the PES literature,
however, suggests that marketbased schemes to
enhance ES will be more efficient and require
monetizing or commoditizing biodiversity
conservation, watershed protection, and carbon
sequestration
42
. PES schemes depend on funds
derivedfromdirectbeneficiariesofsuchservices(in
case of commodification) , and/or an increased
publicinterestinsupportingconservation(incase

Figure2.Thefivecapitals (assets)ofthelivelihoodapproach
38
interact with three subsystemsof thehuman
brain (system 1 and system 2 of Kahneman
9
plus a system 3 shaping and responding to social norms),
influencingfivescalesofeconomicanalysis(pico,micro,meso,macroandgiga)ofhumandecisionsabout
governance,resourceuseanddevelopment
7

of compensation). In the latter case, funds are

used to compensate for involuntary or voluntary r
estrictions on land use. They aim to be sufficient
tooffsettheopportunitycostsofforegoingprivate
benefits from legal activities with negative
environmenttal effects
43
. In a marketbased
approach to enhancing environmental quality
throughfreelynegotiatedformsofPES,bargaining
position is crucially important
44
. Where potential
supplyofESdeliverycontractsislessthandemand,
ES providers can negotiate for price levels beyond
compensationforopportunitycosts;ifdemandfor
such contracts is less than potential supply, the
market may settle on a price that is just about at
breakevenlevelforESproviders.Commodification
with price levels reflecting current supply and
demand can work where the timelags for
increasing supply are less than the time scales at
which demand varies, and where production
decisionsarereversible.Few,ifany,ESmeetthese
requirements and the mechanisms to set price
levels must reflect longer term societal values,
rather than the economic mood of the day. While
this may generally point towards a government
mediated compensation approach rather than
marketbased commodification, a third paradigm
(coinvestment) has been recognized in PES
literature and praxis.. Primarily on the basis of the
conditionality of contracts, a distinction has been
suggested
45
between commodification of ES (CES),
compensation for opportunities skipped (COS) and
Coinvestmentinenvironmentalstewardship(CIS).
Much of the literature on PES focuses on
identifying the payment level needed to change
land use
46
, targeting land users, structuring
payments and contracts
25
, effectiveness of public
versus private sector arrangements
47
, and design
of public policy
48
. Few empirical studies so far
havedescribedthemediumtermimpactofPESon
1)thelandmanagers,2)thesocialsystemtheyare
part of, and 3) the ES targeted
49
. Some of the first
PES efforts in Southeast Asia and Africa are now
reachingapointwheretheseissuescanbestudied
empirically and most of the authors of this paper
aredirectlyinvolvedinsuchstudies.
We will focus our review on various types of PES
applicationsinthecontextofdevelopingcountries,
but explore the way paradigms, concepts and
approaches have been influenced by the
BOXAcronymsused
CES:CommodificationofES(CES1=ESas
such,CES2=ESpackagedwithbranded
commodities)
CIS:CoInvestmentinenvironmental
Stewardship
COS:CompensationforOpportunitiesSkipped
CRES:CompensationandRewardsforES
ES*:EcosystemServices(seeminiglossary)
ES:EnvironmentalServices(seeminiglossary)
PES:PaymentsforEnvironmentalServices
REDD+:ReducingEmissionsfrom
Deforestationand(forest)Degradationplus
foreststockenhancement
System1:Brainfunctionasdescribedby
Kahneman2011thatisrapid,intuitive,
subconsciousandsyntheticandthatleadsthe
primaryresponseofhumanstoopportunities
andchoices
System2:Brainfunctionasdescribedby
Kahneman2011thatisslow,rational,
consciousandanalyticalandthatleads
problemanalysisandrationalizationof
choicesmade
System3:Brainfunctioncomplementing
systems1and2andreflectingsocialnormsto
whichanindividualhaslearnedtocomply
with
8

experience in countries with different histories of

land use patterns, land ownership and tenure
regime, rural population densities and degree of
market integration. Financial incentives can both
support and undermine social norms compatible
with ES enhancement. External coinvestment
e.g., through incentives from programs to reduce
emissions from deforestation and degradation
(REDD) and ecocertificationneeds to synergize
with local efforts by understanding local dynamics
and conditions for free and prior informed
consent.
Inthisreviewofrecentliteraturewewill:
Analyze the different interpretations of PES in
segregation perspectives on landscapes
functions and those based on integration in
multifunctionallandscapes
DiscussPESdefinitionsandtheirrelationshipto
Realistic, Conditional, Voluntary and ProPoor
performancecriteriaandevolvingparadigms
Provide a brief history of PES concepts and
applicationindevelopingcountries
Position PES in the debate about
multifunctionalityoflandscapes
Summarize critiques of PES theory and
questionsarisingfromemergingPESpractice:
Missing metrics for environmental service
performance
Arealbusinesscase?Motivationforbuyers
Motivational crowding out: motivation for
ESproviders
PESinthepoverty*environmentnexus
Are clear property rights a precondition for
PES?
Isthere enoughPESfundingforapplications
atscale?
Can international REDD+ funding support
localPES?
In the discussion, beyond reviewing published
literature, we provide a new comprehensive
altruism framework and discuss its applications.
Wewillendwithasetoftentativeconclusionsand
frame hypotheses for the interface of praxis and
research.

2. PES definitions and their relationship to

Realistic, Conditional, Voluntary and
ProPoorasperformancecriteria
Early work on the interface of giga and macro
economics
50
tried to quantify the sustainable part
of national and global economic systems (roughly
50%)
47
by focusing on the loss of ES associated
with economic growth as conventionally
measured
51
. Environmental service functions were
dened as the possible human uses of the natural
and biophysical surroundings. For national
accounting, the concept of flows (services) was
linked to stocks (capital). Analyses in the 1990s
thus emphasized natural capital as essential for
development
52
. In 2000, its derivative in the form
of services
53
became the key concept for the
Millennium Ecosystem Assessment, but was
relabeled as ecosystem services
14
. It expanded the
domain of environmental concerns to all benefits
that humans gain from ecosystems, ranging from
provisioning services supplying tangible value to
people, such as food, fuel, and other consumable
goods;toregulatingservices(suchasairandwater
purification, climate buffering), habitat or
supportingservices(e.g.breedinggroundsforfish,
regeneration of soil fertility), and cultural and
amenity services that give intangible benefits to
human wellbeing
54
. Originally intended to focus
on the value of nature
53
, there was no logical
demarcation along the naturalmanaged system
continuum,andtheconceptcametoincludeallof
managed forests and agricultural landscapes. By
9

including the provisioning services that support

commodity production and market function, the
concept of ecosystem services gained in public
attention; however, the externality argument
and market failure does not apply to these
provisioning services, although the clarification of
property rights may be an issue. We will use the
term environmental services (ES) for all
ecosystem services (ES*) except for provisioning,
following
18,21,24,26,41
.Currentliterature,however,is
split over ecosystem services or environmental
servicesaspartofthePESacronym.
ThemosthighlyciteddefinitionofaPESremains
24
:
avoluntary,conditionaltransactionwhereatleast
one buyer pays at least one seller for maintaining
or adopting sustainable land management
practices that favor the provision of welldefined
environmental services. The definition applies
binary, qualitative standards to the concepts of
conditionality, welldefined ES, voluntarily agreed
contracts at the level of individual buyers and
sellers.Strictapplicationofthedefinitionmaylead
totheconclusionthatPESdoesnotcurrentlyexist
in pure form, but that there are PESlike
approaches that approximate the ideal to various
degrees.Thesamemaybetrueforthemajorityof
economic concepts
16
, but the binary definitions
can also be replaced
55
by gliding scales of the
degreetowhichrealistic,conditionalandvoluntary
contracts the provision of welldefined
environmental services are negotiated and
implemented, with additional attention for the
fairness dimension of propoor approaches.
Basedonvariationsinthewaythecriteriaaremet,
threecomplementaryparadigmscancoexistwithin
abroadPESframework
45
,with1)commodification
of welldefined environmental services so that
buyers and sellers can negotiate prices (closest to
the Wunder
24
definition), 2) compensation for
opportunitiesforegonevoluntarilyorbycommand
and control decisions, and 3) coinvestment in
environmental stewardship as key features,
respectively.
In the basic PES concept, payments (flows of
financial capital) are the primary vehicle through
whichthebuyerscanexpresstheirappreciationfor
the ES. As long as the sellers keep producing the
ES, it is up to them how they use this financial
capital: to invest in natural capital, quality of
houses, means of transport or savings accounts or
payforschoolingofchildren,healthcare,amenities
and luxuries of life or any other expenditure. In
practice, however, buyers may be disappointed if
they dont see the sellers invest a considerable
share of payments into direct enhancements of
natural capital; they expect a multiplier effect
56
.
BuyersofES arenotwillingtoforego theircontrol
at least partly because indeed the production
function of ES as emergent properties of complex
landscapesystemsremainspoorlyunderstood.
Efficiency can be considered from the perspective
of the buyer, the seller or the process as a whole,
including its intermediaries and longerterm
dynamics (sustainability). A key economic concept
here is that of Pareto efficiency, where an
equilibrium has been found where no further
transactions can increase the wellbeing of any
actorwithoutmakinganyoneelseworseoff
57
.Like
laws of physics that ignore friction, Pareto
efficiency can be most easily be perceived in a
worldwith perfect informationtoall,fullyrational
decision making about the true interests of all
agents and in the absence of transaction costs. In
therealworld,however,transactioncostsexist,as
dointermediarieswhoserveasbrokerstoprovide
information and influence decisions. These third
party brokers also have their own longerterm
interests and business models that need to be
understood.Efficiencyconsiderationsforthebuyer
consistofeffectivenessandcosts,weighedagainst
alternative opportunities to satisfy their ES
demand. Efficiency considerations for the seller
require understanding of the production
function for ES, as well as how the provision of
the ES fits into the production function for
10

agricultural and other goods of the farm or local

economy.
The Wunder PES definition
24
referred to at least
one buyer and seller exchanging ES for money
(Figure 3A), with Pareto efficiency determined by
the relative shortage of ES and surplus of financial
capitalonthebuyerside,andreverseendowments
onthesellerside.Inpractice,mostofthecurrently
known PES applications in the tropics
58,59,60,61,62

involve linkages of complex systems in buyer and

sellercommunities,involvingexchangesinmultiple
asset types (Figure 3B). Contracts involve
investments and linkages in social capital and
individual human capital. The initial currency may
be recognition and respect as social capital
exchanges,ratherthanmoney
63
.Whentakentoits
fullconsequences,thisimpliesthatthebuyersand
sellersbecomecoinvestorsincrosslinkedsystems
3. Brief history of PES concepts and application
indevelopingcountries
After the initial excitement of PES, approaching
silverbulletstatus
21
,thepromiseandperilsof

PESformed thetitleofreviewsinboth2005
64
and
2011
20
.BothreviewsassertedthatPESexperiences
hadalreadydemonstratedthatinvestinginnatural
capital rather than built capital can make both
economicandpolicysense,butthatmarketsforES
orES*(seedefinitions)createchallengesincluding
moral hazards, rentseeking, free riders and
perverse incentives. Lack of market reflection of
the full social cost of ES production can lead to
incorrect measures of the scarcity of some ES and
nomeasuresfortherest.
EarlyliteratureonPESclassifiedtheformsofPESin
practice and recognized at least four types of PES
schemes, differentiated by the degree of
government intervention in administration of the
schemes, by the characteristics of the buyers and
sellers,andbythesourceofpayments(65,66)
65,66
.
By pointing out the weaknesses of indirect
environmental interventions such as Integrated
ConservationandDevelopmentPrograms,others
67

argued that PES can create a direct incentive

Figure 3 A. PES interpreted as exchange of financial capital for ES, usually between parts of society that are
shortinnaturalcapital(N)buthavefinancialcapital(F)tospare,andcommunitieswherethebalanceisthe
otherwayaroundandwheretheESsellersarefreetousethefinancialcapitalobtainedaccordingtotheir
ownprioritiesaslongastheEScontractualobligationsaremet;B.Exchangesthatinvolverelationshipsin
terms of human capital (H), social capital (S) and/or infrastructure (I) as well, and can be termed co
investmentinES
45

11

scheme between ES sellers and buyers and thus

might better achieve both conservation and
development objectives by better targeting and
lowering transaction costs. PES concepts were
tested as a possibility to increase effectiveness in
environmental protection and reduced (public)
conservationbudgetsinLatinAmerica, the USand
Europe
21,46,68
. It appears that the coinvestment
paradigm seeks a middle ground between ICDP
and PES concepts, with partial conditionality and
escapefromaprojectcycle.
Costa Rica became a pioneer in PES in developing
countries based on its 1996 forest legislation that
provided a publicly funded incentive scheme for
private landowners to maintain or enhance forest
as provider of valuable ES. Payments to
landowners can be made for the provision of four
types of ES, i) carbon sequestration and storage
(mitigation of greenhouse gas emissions); ii)
watershed protection (hydrological services); iii)
biodiversity protection (conservation); and iv)
landscape beautification (for recreation and
ecotourism). Landowners receive direct payments
for the ES their lands are assumed to produce by
adopting sustainable forest management
techniques that do not have negative impacts on
theforestcoverandthatmaintainqualityoflife
69
.
The Government of Costa Rica acted as the
buyer/investor, seeking international stakeholder
buyers for carbon sequestration services and
domestic ones for expected hydrologic services.
This combination of domestic and international
sales together with tax revenue, international
loans and donations was used to finance
environmental service provision
70
. The country
made substantial progress in (involuntarily)
charging the captive audience of water users, and
more limited progress in charging beneficiaries of
the biodiversity and carbon sequestration users
71
.
Strongpathdependencyinthewaypaymentsto
service providers originated in previous forest
subsidy schemes, however, implies considerable
roomforimprovementintheefficiencywithwhich
it generates ES
71
. While the initial success and
visibilityoftheCostaRicaprogramhasencouraged
experimentation elsewhere
72
, a more critical
literature on the Costa Rica case
73
and its
followers
28,74,75,76,77
isnowemergingthatsuggestsa
reframing of the way incentivebased mechanisms
are perceived, and a deeper analysis of the social
and psychological dimensions of human decision
making in response to external signals
45,68,78
.
Approaches that support collective action at local
communitylevelandaddressissuesofconflictover
land use rights are now seen as essential to
achieve success (see section 5.4). Proponents of
fairness dimensions as elements that need to be
added to effectiveness and efficiency prefer the
useofthebroaderconceptofrewards(RES)rather
than payments for ES
32,45,79
. The notion of RES
focuses on the multiple goals of ecological
sustainability, just distribution and economic
efficiency and favours a variety of payment
mechanisms to achieve these goals, both market
and nonmarket
80
. RES further involves the
integration of propoor elements into economic
instruments to enhance ES with the basic
argument that poverty alleviation has to be
included into any portfolio to protect the
environment, especially in developing
countries
81,82
. This contrasts with the view that
poverty alleviation can be a positive side effect,
that can be included as long as it does not imply
efficiency losses
83
. PES schemes are likely to
change (and sometimes reinforce) existing power
structure and inequalities in decision making and
access to resources, with significant equity
implication
82,84
.Whiletheprimarydecisionmaking
power may be in the hands of the buyer, their
lack of knowledge of local conditions and
opportunity costs is a disadvantage. Procurement
auctionsweredesignedtoreducetheincentivefor
sellerstoinflatetheircontractprices
85
.
Swallow et al.
43
introduced the term
compensation and rewards for environmental
servicestorefertoarangeofmechanismslinking
12

ecosystem stewards and environmental service

beneficiaries, including the mechanisms normally
included under the term payment for ecosystem
service.Theynotedthattherelationshipsbetween
ecosystem stewards, environmental service
beneficiaries and intermediaries may be more
complex than a simple transaction, with
agreements that are not wholly voluntary and
payments that are not wholly conditional. Based
ontheseenrichedconcepts,recentstudiesofPES
86

tested multiple paradigms and hypotheses. Many

of the conclusions of the past decade support the
earlier assertion that environmental functions
dontlendthemselvestomarkettransactions
87
.
4. PES and multifunctionality based on
segregation (sparing) or integration (sharing) of
landscapefunctions
Other interpretations of the terms PES exist
88
,
however, (Figure 4A) and inform part of the
literature. They relate to alternative views on how
multifunctionality of land can be achieved, by
spatialsegregationorintegration.
In the use of marketbased instruments to
increase ecosystem services, as applied in
Australia
88
(Figure 4A), the ecosystem services
production function is dominated by the natural
capital of an area and is best served by a
segregation approach , in which agricultural inten
sification on the best land can lead to land
sparing, aided by incentives to take marginally
productivelandoutofproduction.Incontrast,the
integration and land sharing perspective of Figure
4B, suggest that the various services can be
obtained within a land use system, with PES
incentives modifying the internal tradeoffs
between provisioning and other ecosystem
services.
The contrasting definition and perception of
ecosystem and environmental services of Figure
4A and B can be understood in response to the
types of landscape in which they apply, and the
perspective on the sparing versus sharing
debate that reframed the segregation versus
integration issue
89,90
. Land sparing by reduction of
the area needed for food, feed and fiber
production through forms of agricultural and
silvicultural intensification (Borlaug hypothesis),
is associated, in a paradigm that remains popular
in the conservation world as well as agricultural
industry,withexpectationsofhighlevelsofESthat
can be provided on the land taken out or not
neededforagriculturalorforestryproduction.The
primarytradeoffisbetweenhowmuchlandcanbe
taken out of production, at what cost, and what
quantity of services this land will then provide.
Land sharing, by contrast, is based on the concept
ofoptimizinglandproductivityintermsof

Figure 4. Two ways the term environmental services are understood in the PES literature: A. Environmental
services are the sustenance or enhancement of natural capital linked to land use, as basis for ecosystem
services of all types
88
; and B. Environmental services are ecosystem services beyond provisioning but
influencedbylandusethatisprimarilytargetingprovisioningservices
18,21,24,26,41

13

provisioning, regulating, supporting and cultural

functions in integrated systems, rather than for
provisioning alone.. The primary tradeoff in this
perspective is internal to the land use: what level
of services can be coproduced with tradable
goods, and how do economic incentives for ES
modify the optimum point for the local decision
maker. The land sparing approach may focus on
generic instruments 1A and 1B of figure 1, the
sparing approach requires the more specific
targetingofinstruments1Band2B.
Part ofthePESliterature is about taking land out
of production
91
, ecological restoration and
nature management. Another part is about
marginal changes in intensity of agriculture and
use of inputs, where ES are coproduced with
tradable goods. In terms of decisionmaking, the
first case deals with discrete options and a drastic
shiftintheprimaryfunctionofparcelsoflandwith
relatively simple compliance checks; the second
deals with continua with thresholds and the need
to create sufficient performance criteria for
contracts. The first situation refers to a
segregation of landscape functions, and the
second to integration in multifunctional
landscapes
56,57
.
The Tinbergen principle
92,93,94
, first formulated in
1952, follows the basic matrix algebra principle
whereby the number of equations has to match
the number of unknowns for a problem to be
solvable. Accordingly, the number of policy
objectives and number of policy instruments also
have to match. As attractive as multipurpose
policiesmayseem,theyrequirestrongcorrelations
in the real world between the targets. As carbon
stocks and biodiversity in tropical forest margins
areonlypartiallyrelated,optimizationforreduced
C emissions does not give the same results as
optimization for biodiversity conservation, and an
additional, corrective policy instrument may be
needed. Similarly, poverty and environmental
issues can be correlated over part of the space
time domain, but they are not sufficiently causally
linked to expect propoor PES to maximize
efficiency of (shortterm) ES enhancement
94
. The
EU Agrienvironment scheme has only partially
achieveditsgoals
95
,asadditionalgoalswereadded
in its design beyond enhancement of ES. The fully
segregatedandfullyintegratedlandscapefunction
options are extremes of a wide range of partial
integrationsolutions(Table1).Intheupperpartof
the table a highly reduced matrix shows that each
policyrelevant objective has its own part of the
landscape. Synergy between objectives in such
configuration is minimal, but policy makers can
rapidly switch land use allocations if objectives
changeinweight.Inthelowerhalfofthetable,all
land use types potentially contribute to all
objectives, and land use planning has to find a
solution that satisfies the minimum requirements
for each function and maximizes the aggregate
benefit beyond this minimum condition. Under
certain parameter conditions, a multifunctional
approach as in the lower part of the table can
achieve more overall functionality on the same
landarea;thetableprovidesaformalcriterionfor
such an outcome. Configurations in the lower half
of the table can be strongly interlinked, in which
caseallfunctionsmaybebufferedbuttheflipside
of this may be that the status quo is too resilient.
As posited by various authors independently
55,96
,
the conditions where segregation or integration is
superior and/or where sparing or sharing would
work best depends on the convex or concave
shape of the tradeoff curve between multiple
functions.Inreality,however,suchtradeoffcurves
as the one between productivity and biodiversity
may have convex as well as concave parts.
Regardless of the detailed shape of the curve, a
graphical representation can explore under what
conditions mixed systems can be superior,
depending on the level of rewards forES. Figure 5
explores the plausible relations between flows
(e.g., provisioning services) and stocks of an
(agro)ecosystem. If all the utility for users
depends on the flow, the system will be driven
towardsthemaximumflow,regardlessofthe
14

Table 1. Relationship between land use category and policy objectives under fully segregated (only
diagonalcellsarenonzero)andfullyintegrated(nocellsarezero)extremes
56

Land use
category
Policyobjective
A
Resource
extraction
B
Economic
growth
C
Centre
based
welfare
D
Decentralized
welfare
E
Environmental
integrity
Segregated land
useplan

f(A) A 0 0 0 0
f(B) 0 B 0 0 0
f(C) 0 0 C 0 0
f(D) 0 0 0 D 0
f(E) 0 0 0 0 E
Integrated land
useplan

1 f(1,a) f(1,b) f(1,c) f(1,d) f(1,e)
2 f(2,a) f(2,b) f(2,c) f(2,d) f(2,e)
3 f(3,a) f(3,b) f(3,c) f(3,d) f(3,e)
4 f(4,a) f(4,b) f(4,c) f(4,d) f(4,e)
5 f(5,a) f(5,b) f(5,c) f(5,d) f(5,e)
Total f(i,a) f(i,b) f(i,c) f(i,d) f(i,e)
Equivalence
requirement
f(i,a)=A f(i,b)=B f(i,c)=C f(i,d)=D f(i,e)=E
Multifunctionality
advantage if
there is a set of
f(i)forwhich

f(i)<(f(A)+f(B)+f(C)+f(D)+f(E))
15

Figure 5A. Concave and convex shapes of tradeoff curves between flow (harvestable yield and other services) and
stock(e.g.biodiversity,landhealthorCstock)oflandusesystems;B.totalincomebasedontheflowsplusPtimes
the stock, for concave and convex tradeoff curves; arrows indicate income maximizing solutions and the upward
shiftofstocksatincomemaximizinglandusechoices
shape of the curve, as long as it is monotone.
However, if economic value can be assigned to
the secondary function (Yaxis) relative to the
primary function (Xaxis) before optimization,
mixed systems may be superior. For concave
curves, there is no such solution and optimality
implies a choice between the two functions; for
convex curves intermediate solutions exist, for
any nonzero value of the value ratio. Adding
income value to landscapelevel, carbon and/or
biodiversity stocks effectively means tilting the Y
axis of the biplot (Income = Flow + P*Stock) and
may shift the point of maximum economic return
toahighercarbonstocktrajectory.Dependingon
the ratio between stock and derived income
stream and the shape of the stockflow tradeoff
curve,rewardsystemsforESrelatedtocarbonor
biodiversitystockscanbeexpectedtoshiftfarmer
decisions only where convex tradeoff curves are
involved.
5. Critiques of PES theory and questions arising
fromemergingPESpractice:
5.1 Missing metrics for environmental
serviceperformance
In order to get ES into the domain of market
functions, the spatial and temporal scales at
which performance can be measured are
important for the way conditionality can be
included in contracts
23,24,45,97
. For goods there
typically is a value chain in which the price per
unit substance shifts with processing, transport,
quality control and branding, but there is a clear
relationshipbetweentheunitsinwhichendusers
buy or consume goods and the way they are
produced. For most ES such relationship is
lacking
98
.Whatisoneunitofwatershedfunction,
apartfromwaterquality?
99,100
.Whatisoneunitof
biodiversity, apart from the populations of
specific, flagship species?
101
Carbon stocks and
greenhouse gas emissions are relatively easy to
quantify, as they scale with area, in contrast to
watershed functions and biodiversity that have
fractal dimensions on a length scale other than
the 2.0 of areabased scaling
7
. Most PES
arrangements cannot deal with the actual
services, but have to accept proxies such as the
condition of land cover that is supposed to
enhance ES; in other cases it has to go a step
further back towards the human actions taken
that affect the condition of the land
45
. In many
16

cases trees and forests are associated with

perceptions of ES, but the evidenceon whichthis
is based may be relatively weak when held to
scientific scrutiny
102,103
. Also, the contrast
between forest and nonforest agricultural lands
in terms of tree cover is less than often
perceived
104
. However, the type of trees and lack
of right tree at right place concepts may be a
limitation to actual ES enhancement where tree
coverisusedasproxy
105,106,107
.
Aninterestingalternativetodirectcommoditizing
of ES (the CES paradigm
45
may be split into CES1
and CES2, accordingly), is to tie ES to existing
commodity flows. Ecocertification in its various
forms is doing just that
108
. It usually implies an
aggregated ES concept rather than sharply
defined separate ES, and leaves the details to
interactionsbetweenproducers(farmers)andthe
design and quality control agency of the
certification process, but multiple standards tend
tocompeteforconsumerattentionandintroduce
a market element in the shaping of operational
rulesforcertification.
Even for carbon, performance metrics remain
contested. Concerns over global climate change
haveresultedinthecreationofpartialmarketsfor
carbon credits, but their exchange between
trading systems (such as the European and
American markets) has been constrained by lack
of political agreement on how to tackle the issue
at global scale. Partial successes in emission
reduction within AnnexB countries of the Kyoto
protocolmaywellhavebeennegatedbytheshift
of highemission production sectors to countries
outside the reach of the agreements. Emissions
embodied in trade have not yet been addressed
by agreements and are a rapidly rising share of
the total anthropogenic emissions. Credibility of
national scale accounting of land use and land
cover change in industrialized countries is still so
low that this sector (currently about 9% of global
CO
2
emissions
3
but a larger share for nitrous
oxides and methane) is excluded from the Kyoto
protocol. In order to create credible results, the
voluntary Verified Carbon Scheme (VCS) and
similar approaches have created protocols that
aresoheavyindatarequirementthattransaction
costs may take up a major share of market value
oftheresultingcredits.Thisisthecaseevenwhen
local communities are involved in data collection
and management
109
, and even with the types of
public funding subsidies that have characterized
thefieldsofar.
AninterestingaspectoftheCES2approachisthat
it links areabased ES concepts to productbased
marketsandvaluechains.Productivitylinksthese
two modes of expression and some of the newer
ecocertification approaches, such as those for
cacao
110
, indeed have minimum standards for
productionperha,toreducetheleakageriskthat
locally ESfriendly but lowproductivity land uses
mayotherwisehave.
5.2 A real business case? Motivation for
buyers
The profile of companies on pollution prevention
has been found
111
to correlate with firmlevel
financial performance after controlling for
variables traditionally thought to explain such
performance. Reduction in emissions of toxic
chemicals, within the legal limits, was associated
with a substantial increase in market value, with
magnitudeoftheeffectsvaryingacrossindustries.
This correlation may reflect that good
management practices that reduce the
environmental loading can also, independently,
increase asset value. Data such as these have
already led to reduced costs of borrowing for
clean companies from banks an indirect but
potentially important aspect of the business
caseforenvironmentalmanagementinpolluting
industries.
What about the "business case for PES"? A
wellquoted example of the early PES literature
refers to the New York drinking water company
17

and its interactions with the Catskills catchment.

Rather than spending $8$10 billion (112)
112
on
mandatedwaterpurificationinstallations,thecity
engaged in preventive actions and negotiated
withlocal governments in the Catskills watershed
to enact land use restrictions that would protect
the water supply. Although in general this case
demonstrated that prevention can be cheaper
than cure, the business case arose in a well
regulatedenvironmentwherethecitycouldavoid
costs imposed by rules that were themselves
preventive.Similarly,asurveyofthebusinesscase
of existing PES in the Philippines
113
with indepth
interviews of public and private enterprises
engaged in PES brought to light that most
companies saw a clear business case for them to
make such payments, but the business case
consistedlargelyoftheneedtomaintainrelations
with government authorities whose consent they
needed to continue operating permits. Early
investors in PES in Kenya include flower growers
in the Lake Naivasha area whose business case
depends on export markets and associated
customer perceptions in European market. Inthis
sense ES probably relate to customer loyalty in
the same way as other service dimensions via an
aggregate corporate image in the system1
brainofcustomers
114
.
5.3Motivationalcrowdingout:motivationforES
providers
The role of social motivation and persuasion as
the third part of the carrot, stick, and sermon
triangle
115
isonlygraduallyenteringthedebateon
environmental and resource management
116
,
117
.
The interface of social motivation and
monetization of ES is not trivial, and an
economicceteris paribusassumption that PES
should enhance the supply of such services has
been challenged both by laboratory evidence
from behavioral economists
118
,
119
,
120
and
emerging experience in the context of rural
development
61,121
,
122
,
123
. Numerous experimental
studies have found that a monetary incentive
crowds out alternate sources of motivation to
perform a task or engage in prosocial behaviour.
Thesestudieshavefoundthatsmallpaymentscan
actually reduce levels of desired behaviour
relative to a baseline
118
, or that when payments
end,thelevelofthedesiredbehaviourreducesto
a level below its baseline before payment was
introduced
124
(Deci 1971). This body of research,
which is largely outside the realm of natural
resourcemanagement,raisesthequestionofhow
the utilitarian framing of ecological concerns and
market strategies can modify the way humans
perceive and relate to nature. Additional studies
are needed in the realm of conservation in order
to help gain a better understanding of the extent
to which monetary incentives are more likely to
have positive or counterproductive effects
regardingconservationaims
125
.
Concerns about motivation crowdingout also are
relevant where collective action is required to
protect natural resources that community groups
manage as common property. The theoretical
literature on PES cited in this review tends to
ignore the challenges of eliciting collective action
in a group contract; there is an implied
assumptionthatcollectiveactionwilltakecareof
itself if the payment is well calibrated
126
.
However, research on management of the
commonsandonthepsychologicalfoundationsof
motivation give strong reasons to anticipate
difficulties in the use of monetary incentives for
environmental services derived from common
property. Commons literature argues that groups
must build trust gradually to be able to
function
127,128
. In addition, in many cases pro
social motivations amongst individuals are rooted
in intrinsic motivators, such as long standing
traditions or norms that favor collective action
129

130
or concern about self image
131
, or public
image
132
. Where collective action is driven by
social, nonpecuniary norms, the introduction of
monetary incentives can undermine the social
norms and thus weaken instead of strengthen
18

collective action
133
. Although such studies were
not undertaken specifically in the context of PES,
they point to a need for more research to
understand how monetary or other incentive
types interact with prosocial motivation and
collectiveaction.
The emerging experience with auctions in a
developing country context suggests that these
aresocialinteractionsofarathercomplexnature,
rather than simple experimental procedures to
establishacorrectprice
134,135,136
.
5.4PESinthepoverty*environmentnexus
PES literature often highlights a potential
compatibility between environmental
conservation and poverty reduction especially
when poor households are contracted to receive
payments in return for their conservation efforts
21,137
. An important reason behind this premise is
that in many developing countries, landscapes
with high potential to provide ES are also
inhabited by a high proportion of poor people.
However, it would be simplistic to assume that
the poor can easily participate in such PES
projectsorthattheywillbenefitsignificantlyonce
incentive payments are disbursed
138
. In some
projects, researchers have found that poor
households are able to participate
79
, while in
others participation seems to have been limited
to relatively welloff land owners
75
. Indeed, there
arestrongbarriersthatmayrestricttheextentto
which poor households can access PES projects.
These include lack of clear tenure, lack of land,
high transaction costs, and high upfront
investments needed to adopt new land use
practices
26,94
. The poor often do not have secure
landtitle,whichmaybarthemfromobtainingPES
contracts. This is especially true for services such
ascarbonsequestration,wherepaymentsaretied
tointendedpermanenceoftheservice.Withouta
clear land title, it may be difficult for those
withoutlandtitletoconvincebuyersthattheycan
ensure the flow of services in the future
139
.
Landlesspoororthosewithouttitlemayinfactbe
ineligible to participate in such PES programs.
Similarly, in the case of rented land, tenants
cannot promise anything about longterm land
usewithoutinputfromthelandowner.Also,ifthe
possibility of environmental service payments
makes the land more valuable, the landowner
may either increase the rent or discontinue the
lease, possibly disrupting the renters
livelihood
140
.
Transaction costs (here interpreted as costs of
negotiating, implementing, monitoring and
enforcing PES contracts) are generally
independent of the size of the contract involved,
which means PES programs that contract many
smallholdersfacemorecostsperunitoflandand
services than those that contract with only a few
largelandowners.ThusPESarrangementsfocused
on individual landholdings may be less viable
where there is a high concentration of very small
farms. Service buyers may try to contract with
large landholders rather than small ones, which
would exclude the poor. For instance, to limit
transactioncoststhePROFAFORcarbonprojectin
Ecuador signed individual carbon contracts only
with farmers owning at least 50 hectares of land,
thus restricting the participation of the local
smallholders in project activities
104
. Similarly,
initialinvestmentcosts(buyingseedlingsorhiring
labor), opportunity costs (loss of benefits from
existing land use that needs to be replaced), and
risks associated with potential benefits from new
landuseallaffecttheparticipationbythepoor
141
.
Itispossibletopayanadditionalsumtocoverthe
additional costs for poor households to
participate; empirical estimates
142
of what such
approachwouldcostforatreeplantingprojectin
Tanzania are available. However, it is hard to
imagine that all buyers of ES would be willing to
paythispremium.
The second related issue is the actual impact on
households once they do participate in PES
projects. Evidence of economic benefits from PES
is mixed. In one of the first studies on local
impacts of forestcarbon projects
143
,theScolel Te
19

project in Mexico was found to have a positive

effect on household incomes in the project area.
In contrast, an evaluation
144
of the Noel Kempff
project in Bolivia had a mixed effect, with net
benefits for the large majority oflocalpeople but
a large proportion of community members
expressing dissatisfaction with the project as it
had not met their expectations . Managing
expectations is a challenge in all such efforts; an
initialhypephase helps to getattention, but may
lead to disappointment later on . In a more
comprehensive impact study
145
of PES payments
in a local community in Mozambique, effective
levels of per capita payment and impacts were
found to be small when compared to increased
employment benefits from developmental
activities of the project. On the other hand,
provision of rewards in the form of longterm
tenure security for local farmers in Indonesia has
had a positive impact on the households
livelihoods
146
. The interaction of PES with poverty
is therefore still far from well understood and
more empirical research is needed to understand
thepovertyenvironmentnexus.
Gender dimensions of the poverty*environment
nexus have been studied in terms of gender
differentiated roles in interacting with water and
landresources
147
.Perspectivesonrelativemaleor
female poverty depend on the criteria and
methods of assessment
148
. Where PES contracts
arenegotiatedatcommunityscaleitmaybehard
for outsiders to challenge existing gender roles
and biases, without introducing an additional
objective to an already complex set of social
norms
149
.
5.5 Are clear property rights a precondition for
PES?
Skewed land distribution often compels the poor
to survive by cultivating marginal land erosion
prone slopes and other environmental problems.
Without tenure, and often with only passing
claimsonthelandtheycultivate,thepoorareless
likely to make investments to protect natural
resources
36
. Looking back at Figure 1, the PES
arrow(B2)iscontingentonrightstouse(A2),and
the rights for individual households are
constrained by overall land use policies (A1), just
asPESisconstrainedbyoveralleconomic policies
(B1). For Indonesia, where large tracts of forest
land are underperforming in terms of ES but
remain claimed by the state, the forestry
regulatory framework may (over some parts of
the domain?) have to be replaced by an agrarian
one
150
. Conflicting claims are the primary
bottleneck to any carbon related PES in the
peatlands of central Kalimantan
151
. Yet, positive
examples exist where resolution of conflicts and
implementation of community forest
management, with certain conditionality with
regards to maintenance of ES, has allowed local
ESfriendly investment in land uses
152
. In other
cases, formal recognition was not required
153

when the general positive perception of ES

friendly land use allowed farmersto reclaim their
de facto land use rights from the state. In other
situations,resolvingtenureissueshasbeenapre
cursortootherformsofPES
154
.Thecoinvestment
paradigm
45
allows such steps to be discussed
under the wide umbrella of PES, rather than
putting tenure security as a precondition for PES
effortsanddisqualifyingalargepartoftherural
poor.
5.6 Is there enough PES funding for applications
atscale?
Most of the PES literature so far has looked at
specialcaseswhereahighlocalinterestinESwas
the starting point of PES experiments. To check
how special those situations must be, a recent
study
65
considered the supply/demand
relationship and the relative income additions
that upland people might obtain from supplying
watershed services to their downstream
neighbors.Thepercapitabenefitspossibleinthe
uplands,RP
u,
werefoundtobe:
RP
u=
(A
d
A
u
1
)(I
d
I
u
1
.)(
d

u
1
)
d
(1T)

(1
u
).
20

which consists of a number of dimensionless

ratios of values upstream (subscript u) and
downstream (subscript d): area (A), income (I),
population density (P), the willingness to pay by
downstream beneficiaries (
d
) relative to their
income,transactioncostsTandtheoffsetfraction

u
of what is received in upstream areas. If a
tentative threshold for RP
u
is set as a 5% income
increase before upstream land users might take
noticeoftheopportunityandrespond,theresults
areatleastafactor4off,whendataforIndonesia
are used. This implies that this type of financial
transfercanhardlybeexpectedtomakeadentin
rural poverty in the uplands, but it can be
significantinanonnegligiblesubsetofsituations.
Nonfinancialpaymentpotentiallyopensaccessto
critical livelihood capitals that might be lacking
within the ES provider communities. This type of
payment is usually considered as indirect and
patronizing, while cash payment is frequently
seen as more flexible for ES providers to convert
to local goods and services. Case studies in Asia
65

andLatinAmerica
63
indicatedthatanonfinancial
payment was preferred by some of the local
communitiesinvolvedbecauseofseveralreasons,
suchaslimitedcapabilityoflocalcommunitiesfor
savings, investment and entrepreneurship.
Observations in developing countries reveal that
both financial and nonfinancial payments might
face complex bureaucratic and highly contagious
collusion because the PES governance is still
unclear, formally and informally. However, this
situation might be contextual as an Indonesian
case in Cidanau watershed
62
showed that cash
payment had been successfully transformed to
independent smallscale business and
infrastructure(i.e.,publicaccesstocleanwaterby
developingsimplepipingsystem).
5.7 Can REDD provide international funding for
localPES?
ThepotentialforinternallygeneratedPESfunding
may be limited, once expressed on a per capita
basis, but the Costa Rica case presented an early
example of international funds supporting a
domestic policy for ESoriented incentives. At the
start of the international debate on REDD+,
reducing emissions from deforestation and
(forest) degradation plus forest stock
enhancement, the focus was on national scale
efforts. As the preceding avoided deforestation
had shown, leakage cannot be contained in a
piecemeal projectbyproject approach. To
achieve the REDD+ goals, at gigaeconomic scale,
a multiscale, layered effort is needed that
reaches down to micro and picoeconomic
aspects.Intheinternationalnegotiationsissuesof
pride and sovereignty have been at least as
important and hard to deal with as issues of
carbon price and data collection to support
realistic performancebased systems. As soon as
expectationsoffundingforadditionaleffortswere
raised, existing norms for national forest policy
appeared to be crowded out. Yet, international
effortstobringtransparencytosectorsknownfor
corruption and highlevel support for illegal
logging,seemedtorequireafullcommoditization:
if the same currencies (money and carbon stock
changes) are used across the value chain, elite
capture can be more easily quantified and
reported.
EarlyclaimsonperverseincentiveswithPES
applications in the context of tropical forests,
suggesting that direct payments for
environmentalservicesspelldoomforsustainable
forest management in the tropics, could still be
easily dismissed
155
. In view of the complexity of
multiscale drivers of change in forest extent and
condition, in socioecologicaleconomic
systems
156
, and the contested nature of tenure
and ownership of large tracts of forest, the
claimants for a piece of the pie are many and
negotiationscomplex.Manyattemptsweremade
to bypass local and/or national governments in
linking international finance to local action to
protectforestandclaimemissionreductionthey
may all be bound to fail. A nested, multiscale
approach may well have to be polyparadigmatic,
21

changing face between, but synergizing, CES, COS

and CIS paradigms
157
. In countries with existing
public sector payment schemes for forest
management,REDD+can be added to the bundle
of services rewarded at relatively low transaction
costs,aslongasthecorrelationsbetweenforestC
stocks and other services are sufficiently
tight
158,159,160,161
.

6.Discussion
6.1 Challenges in bridging across temporal scales
andassociateddiscountrates
PES was conceived as alternative or complement
togovernmentprograms,givingagreaterstaketo
local communities and land users, with a simple
way to convey the relative merit of various
alternative land uses through the details of the
conditionalityclausesinacontract.Wemayhave,
however, come full circle back to the concept of
investing in natural capital: the ecological
economics approach to sustainability
162
. The
financial transfers that have so far been
effectuated
49, 163
are far below the true value to
society that studies such as TEEB (19)
19
are
documenting
164
.Thismightimplythatthecurrent
framing of ES is less universally shared among
stakeholders than assumed and that it needs to
be further contextualized
165
. In the meso
American countries Costa Rica and Mexico that
pioneered in the PES approach at national scale,
the link between measurement, value and
paymentisfarfromresolved
166

It may also imply that the interaction between

governmentpoliciesandPESmechanismshasnot
been fully understood
167
. The crowding out of
social norms at the community and government
level may reduce the effectiveness of the funds
spent (picoeconomic leakage). The concept of
altruismandprosocialbehaviorhaveemergedas
key to a deeper understanding of these feedback
mechanisms. Referring back to the five scales of
economic analysis, we have so far seen that PES
wasinitiallyperceivedasprimarilyaimingtobring
microeconomic decision making at individual,
household or farm level in line with the longer
terminterestsatmesoormacroeconomiclevels.
Much of the discussion so far has been on the
recent advances in picoeconomics of decision
making when humans are offered choices. From
the other side of the scale, gigaeconomics, an
equally important challenge arises, as future
resource scarcity needs to be properly weighted;
iftemporalscaling (discountrates) differasmuch
as suggested in Table 2, it is unrealistic to expect
anysinglepricetoemergeasreflectingtruevalue.
Differential time scales and discount rates make
adaptation a more tangible entry point for
discussions on climate change than mitigation,
even though trees and forests can play a role in
both
107,168
.
Two main differences between pico and micro
economics can be summarized in the way future
options are discounted. While microeconomics
(system2 brain functions) operate at apparent
discount rates that relate to the costs and risks of
borrowing money, the system 1 goes for instant
rewards, preferring what's in front of one's eyes over
almostanypromiseoflargeramountsinanearfuture.
At the same time, picoeconomics respond strongly to
socialnorms(tentativelylabeledassystem3here, but
requiringfurtherstudyinrelationtosystems1and2),
which appears to operate at nearzero discount rates,
as lifetime values appear to be at play. Financial
motivations tend to win out when social and financial
motivationsaremixedinexperimentalsettings
169
,and
the way pico and micro economic spheres interact is
incompletelyunderstood.
In micro as well as macroeconomics,
importantcategoriesofhumanmediatedservices
are considered as equivalent to goods, with
markets approximating a price (exchange rate)
that reflects options for producers to switch
between ways to earn a living. Macro economic
scales differ in discount rates, linked to lower
levels of perceived risk for aggregated entities
such as nation states or large companies
compared to households especially if the latter
don't have secure ownership or resource use
rights. The difference between private and
socialdiscountratesisanimportantpartofthe
PolicyAnalysisMatrixapproach
170

,171
,andcan
22

Table2.Comparisonacrossfivescalesofeconomicanalysisoftheapparentdiscountrates
Economics Decisionmaking Discount rate for goods
and human/ social
services
Environmentalserviceissues
Pico Brainsynapse Goods:>100%/day
Social:~0%
Crowdingoutsocialnorms
Suasion efforts for inter
nalizationforESproducers
Feelgood social status
motivationforbuyers
Micro Household ~20%/year
PES operational domain, adaptation
to global climate change, dealing
withinvasivesandbiodiversityloss
Meso Landscape,
Enterprise
~10%/year
Macro Nation ~5%/year
Giga Global natural
resources
<0% Future natural capital scarcity,
conventions to reduce biodiversity
loss, mitigation of global climate
change

have substantial consequences for micro and

macroeconomics of tree planting efforts
172
.
However, by focusing on the current benefits
derived, the ES concept, as a positive framing,
may have failed to appeal to risk aversion on
loss of natural capital. Urban consumers face a
larger diversity in their food choices and more
security in drinking water supply than probably
at any time in human history
101
, while they can
fully saturate their appreciation of existence
valuebywhattheyseeontelevisionstheycan
easilyignorethemessagesaboutlossofES*.
6.2Fromvaluetoutilityandprospect
As discussed by Kahneman
9
current
understandingofhumandecisionmakingonthe
picomicro economic interface across the
intuitive,emotionalsystem1andtheconscious,
rational system 2 can be built up from a
sequence of concepts, that as yet need to be
incorporatedinthePESliterature:
1. Expected net effect: probability of possible
outcomes,weightedbytheirlikelihood
2. Value: as effects, but seeking a common
financialmodeofexpressiontheeffects
3. Utility: recognizing that value relative to
current endowment may imply differential
utilityofthesamevalueformultipleactors
Bernouillis 1738 equation that proposed a
proportionality remained virtually
unchallengedformorethan250years
4. Prospect
173
: recognizing the strong
asymmetry (hysteresis) in the emotional
response between gains and losses, as
23

system1 feature that modifies the system2

utility. There appear to be clear patterns in
the conditions under which risk taking can
be expected (i.e., i. hope to avoid loss,
perceived high probability of loss but small
chance to get bailed out; and ii. hope of
large gain, perceived low probability of
substantialnetgain,withoutriskofloss),and
when risk avoidance may prevail (iii. fear
of disappointment, high probability, but no
certainty, of net gain; and iv. fear of large
loss, low probability of substantial loss).
Where the portrayal as loss or gain depends
on the anchoring or benchmark, rather than
objectiveeffect,shiftsfromrisktakingtorisk
avoidance can be under the influence of
communicationstyles
Prospect theory allows much of the gains in
economic equations to be retained by merely
replacing utility by prospect. The framing of
issues, however, suggest incomplete reverse
bility.
PES instruments generally try to reduce the
gap between the overall prospects for the
decision maker (at a specific scale) and the
prospects as evaluated at other scales.
Internalization of externalities is fully achieved
when the prospect evaluations have become
independent of scale; maybe it helps if a term
such as weakly internalized replaces
externality, to indicate space for quantitative,
gradual shifts. PES relates financial benefits for
private or corporate decision makers to options
that minimize environmental damage for other
scale levels. Such financial transfers, however,
are part of a complex crossscale crossvalue
exchange, and cannot assume to be ceteris
paribus, as the financial transfers can involve
broaderinteractions.Wemay,however,haveto
go one step further if we want to bring picoto
giga economics into a single framework. The
bounded rationality concept implies that, in
contrast to the assumption that there is perfect
information and unlimited intellectual
capacities,wemusttakeintoaccountthata
Table 3. Classification of prospects over capital types x and actor levels i, with associated discount rates and
affinityvector
Accounting
stance (scale
of economic
analysis)
Affinity Dis
count
rate
Sumsofdiscountedbenefitsminus costs
Financial Human Social Natural Infra
structure

Fin

Hum

Soc

Nat

Inf

Private (pico,
micro)
A
priv
r
priv
b
F,p
,c
F,p
b
H,p
,c
H,p
b
S,p
,
c
S,p

b
N,p
,
c
N,p

b
I,p
,c
I,p

Local (pico,
micro)
A
loc
r
loc
b
F,l
,c
F,l
b
H,l
,c
H,l
b
S,l
,c
S,l
b
N,l
,c
N,l
b
I,l
,c
I,l

Downstream
(meso)
A
downst
r
downst
b
F,d
,c
F,d
b
H,d
,c
H,d
b
S,d
,
c
S,d

b
N,d
,
c
N,d

b
I,d
,c
I,d

Corporate
(meso)
A
corp
r
corp
b
F,c
,c
F,c
b
H,c
,c
H,c
b
S,c
,
c
S,c

b
N,c
,c
N,c
b
I,c
,c
I,c

National
(macro)
A
nat
r
nat
b
F,n
,c
F,n
b
H,n
,c
H,n
b
S,n
,
c
S,n

b
N,n
,
c
N,n

b
I,n
,c
I,n

Global(giga) A
glob
r
glob
b
F,g
,c
F,g
b
H,g
,c
H,g
b
S,g
,
c
S,g

b
N,g
,c
N,g
b
I,g
,c
I,g

Universal A
univ
Religionmediatedconcernsbeyondcapitalsapply
atscalesbeyondglobe
Note:
1
indicatesestimateofallcostandbenefittermsratherthantruevalue
24

landowners may failto find the optimaladoptionof

theirlanduseinthepresenceofcomplicatedspatial
evaluationrules
174,175
.Ingenericframeworkdecision
making at any scale can be analyzed to be the
outcome of a weighing (by brain systems 1, 2 and 3
in different and still poorly understood ways) of
optionsbasedon
176
:
a)asetofoptions,
b)asetofcriteria(compareTable1),
c) expectations of how the various options will
performagainstthesecriteriaovertime,
d) incomplete information on merits (or costs and
benefits)
d) a way of summarizing timebased performance
intoasingleattribute,
e)anoperationalweighingofthecriteria,and
f) an allocation of resources across one or more of
theoptions.
Based on Table 3, we can conceptualize a
simpleprospectfunctionforeachaccountingstance
i could be an affinityweighted sum of expected
benefits and costs across the various asset types
(capitals) x, and across all other scales (accounting
stances) i, each discounted with an appropriate
discountrater
x,i
andweightedbyw
x,i
:
Prospect
i
=
i
A
i

x
w
x,i

t
(b
x,i,t
c
x,i,t
)/(1+ r
x

i
)
t

(2)
Inpracticemanytermswillhavenegligiblysmall
values for many of the agents/decision makers, but
we can see that there are multiple entry points for
nudging decisions towards greater ES performance
via,A,w,ror:
: increasing knowledge of costs and benefits to
othersofactionsanddecisionsbythefocalagent,
A:increasingaffinityandsenseofbelonging,
w: modifying the implicit weighting factors across
capitaltypes,
r: discount rate component reflecting the scale and
itsassociatedriskaggregation,
: discount rate component reflecting the type of
capital.
A number of parallel approaches have been
proposed that can be seen as simplifications of this
genericscheme:
a) Valuing ecosystem services is aimed at finding
the exchange rates (w
x,i
) across capitals and
expressing all in financial terms
19
; however this
approach is challenged by the intrinsically
differentdiscountratesandinstitutionalcontexts
that tie any specific conversion factor to an a
priori choice of time frame, along with evolving
sciencebasedunderstandingofESdynamics
b) Carrots (positive incentives leading to increase
b
F,p
) and sticks (enforced regulations leading to
increase c
F,p
) interact with sermons that
enhance the affinity vector for other scales,
reduce the discount rates for capitals other than
financial and scales other than private, and
increase knowledge of expected costs and
benefitsbeyondprivatefinancialgains.
c) Crowding out social motivation where b
F,p
,c
F,p
interact with b
S,p
,c
S,p
; preferences expressed in a
social (group) context may differ from those
expressedindividually(175)
177

d) CES forms of PES/CRES, e.g., from national to

privatescales,translatethe(b
N,n
c
N,n
b
N,p
+

c
N,p
)
differential into b
F,p
terms, with market
mechanisms determining the right price that
apparently expresses the value for external
stakeholders
e) COS forms of PES/CRES does the same but with
prices determined at broader negotiation tables
andabroaderrangeofinteractionswithrules
25

f) CISformsofPES/REScantakeinamuchbroader
rangeofvaluesanddiscountrates
6.3 A new comprehensive altruism framework
anditsapplications
In the simplified form of two levels, private and
other and a uniform relative weighting of the
various capitals, equation 2 resembles the equation
George Price developed for the emergence of
altruismasprobleminevolutionarybiology:

Figure 6. George Price

178
clarified in 1968 that a cova
riance matrix between individual and aggregate benefits
canreconcilealtruismandselfishgenes.
In a sense George Prices equation for altruism
(subordinating private utility to that of a broader
group) specifies conditions for internalization of
externalities, as it shows that the best interests of
the individual can match those of a broader group,
as long as the benefitminuscost differential is
balanced by the social cohesion term. The affinity
parameterisscaledbetween1and+1andincludes
foesaswellasfriends.
6.4 Multiscaleframing ofREDD
+
linkedtomultiple
PESparadigms
Coming back to the multiscale institutional framing
of the REDD+ agenda, a multiparadigmatic
approach appears to be logical: at national scale
property rights are clear (national borders),
performance measures at this scale have absorbed
most of the crosslandscape leakage, and
permanence can focus on continuity of accounting
rules at aggregated levels. A CES paradigm of cross
nationalcarbontradeisfeasible.Betweenanational
scale and its subnational entities (sectorbased or
geographically defined), a COS paradigm of
compensating for choices on the development/
environment possibility frontier is appropriate. At
locallevel,aCISparadigmisappropriateandcanbe
usedtocreatecomanagementregimesandgreater
clarity in resource use rights. A key challenge,
however, is to maintain transparency in such a
multiparadigmatic approach, given the tendencies
to elite capture, low accountability (corruption) and
electioncyclepoliticalbiases.Inthefuturedirection
paragraph we therefore put these ideas in
hypothesis format: there is some evidence that
supportstheideas,butacriticalglobalcomparisonis
needed.
6.5Closingremarks
Finally, at the gigaeconomic scale the concerns for
planetary boundaries
179
and the need for more
targeted, more rapid, more transparent and more
innovative feedback loops remains urgent, as
current feedback does not keep up with the rate of
change in the planet earth system. The expectation
that PES could provide flexible, effective and fair
feedback loops has only partially be met. Some
twentyyearsbeforethe1992Rioconference,advice
to the Club of Rome called for reshaping the
international order (RIO)
180
. Twenty years after
1992, that call is urgent as it was then
181
. Unless
global agreements and policies set the pace and
clarify the boundaries, marketbased ES approaches
will only serve subsystems and may make things
worse for others. We thus end on a rather
pessimisticnoteontheprospectsforPEStoserveas
a panacea to align ecology and economics. The
optimistwillnotehowfarwehaveprogressedfrom
the stoneage economics
182
at the start of the
Anthropocene
183
and be less concerned that we still
have a way to go. The realist will appreciate the
progressmade,butseethepaceastooslow
184
.

FUTURE ISSUES
The following set of issues at the interface of PES
praxis and interdisciplinary research may guide
futureefforts:
H1: Crossscale mechanisms for fair and efficient
enhancementofES(betheywater,biodiversity
orclimaterelated)needtoacknowledge
26

differences in clarity of rights and performance

measures between local, subnational and
national scales that reshape fairness and
efficiencyconceptsatscaletransitions.
H2: At national borders an international form of
commoditized environmental services carbon
trade is feasible that links performance on
verifiable emissions reduction below
internationally agreed reference levels, to
financialflows(CES1paradigm).
H3: In response to consumer concerns over the
consequence of current modes of production
international trade will increasingly include
voluntary and mandatory standards for
emissions reduction and biodiversity
conservation linked to commodity value chains
that provide incentives for reduced emission
land use and reducing biodiversity threats
(CES2paradigm)
H4: From national to subnational entities a form of
compensating for opportunities skipped is
appropriate,usingproxiessuchasforestcover
in relation to human population density,
combining biodiversity, watershed concerns
andGHGemissions(COSparadigm)
H5: At local level, property rights and outcome
basedperformancecriteriaareachallengetoa
$ per t CO2 exchange and coinvestment in
environmental services (interpreted across
water, biodiversity and Cstocks) and the
human and social capital that support them is
appropriate as a start (CISparadigm); it will
generally combine adaptation and mitigation
approachestoclimatechangeissues.
H6: Transparency and free and prior informed
consent(FPIC)canbeachieveddespiteshiftsin
currency, language, timeframe and
conditionality between scales, associated with
theparadigmsused.
SUMMARYPOINTS
Conditionality,degreeofvoluntaryengagement,
anddegreeofrealistictargetingofES
enhancementareslidingscalesratherthan
binary,qualitativeproperties,asinferredinthe
mostcommonlyusedPESdefinitionandallow
multiplePESparadigmstocoexist
RewardsforEStargetingindividualsor
communitiescanonlybefairandefficientifthey
synergizewithrightsbasedapproachesatthe
samescale,genericlanduseplanningandgeneric
macroeconomicincentivestructures,requiring
anintegratedgovernanceapproach
Financialincentivestoindividualscanleadto
crowdingoutsocialmotivationandcanhave
negativeeffectonESdelivery,althoughempirical
evidenceforfullscalePESismissingsofar.
Coinvestmentparadigmsmaybeapplicablein
theabsenceofclearpropertyrights,can
contributetoconflictresolutionandarticulation
ofrights,pavingthewayforfurtherES
performancebasedcontracts;theyarenota
silverbulleteitherandhighconflictagriculture
forestfrontiersmayrequirerulebased
governanceasastart
Apparentaltruismcan,insomecases,be
reconciledwithlongtermselfinterestacross
multipleassettypesacrossscales,oncea
perceivedaffinityparameterisspecified;this
maywellbetheprimarytargetofinternalization
effortsof(initially)externallysupportedES
rewards
PESpracticeneedstobeunderstoodasan
interfaceofpico,micro,meso,macroand
gigaeconomics,wheremultiplediscountrates,
efficiencyconceptsandbrainsystemsinteract;
thelanguageandparadigmusedmayhave
deeperpsychologicalimpactsthanhasbeen
realizedsofarandwhatpullsinoneaudience,
repelsanother
CommodificationofESismorelikelytobebased
onlinkingESvaluetoexistingcommodityflows,
ratherthancreatingtradableESunits,butthe
motivationanddynamicsofbuyersmaybeakin
toacompensationparadigm
CombinationsofPESparadigmsmaybe
unavoidableinrelatinglocalrealitiestoglobal
concernsoverESandnaturalcapital,butrequire
specificattentionforthenodesthatconnect
acrossscalesthathavetotransparentlymanage
theexchangeratesbetweencurrenciesof
multipleassettypesandthedivergentdiscount
rates

27

H7: Crowding out social norms for good

environmental and land use practice by
introductionoffinancialincentivesthatarenot
embedded in local context is an empirically
demonstrable risk that can effectively
underminePESmechanisms
H8: The picoeconomic consequences of risk
management strategies depending on the
anchoringoflossesandgainscanbeintegrated
intoPESpraxisandcommunicationstrategies
Acknowledgements
Theauthorsappreciatethecommentsfrom,and
discussionswithSvenWunder,UjjwalPradhan,
DianaLiverman,participantsinthetravelling
workshopinSumatrainJanuary2012andan
anonymousreviewerthathelpedshapethisreview.
TheCGIARResearchProgramonForests,Treesand
Agroforestrysupportstheunderlyingresearcheffort
oftheWorldAgroforestryCentre.

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