Localizing demand and supply of environmental services: interactions with property rights, collective action and the welfare of smallholders

BALMFORDet al. (2002) estimated a global benefit-cost ratio of approximately 100:1 in favor of conserving key ecosystems, species and resources. Various imperfections in the real world constrain environmental conservation: imperfections of governments, im - perfections of markets, and imperfections of local collectives. While most economists recognize that markets for environmental services will remain imperfect and cannot be the only solution to environmental prob - lems, there continues to be strong interest in institutional mechanisms that better harness market forces to match demand for environ - mental services with the incentives of land users whose actions modify the supply of these services. The practical and theoretical case for payments for environmental services (PES) in developing countries is laid out in several recent works, including Pagiola, Arce - nas and Platais (2005) and Landell-Mills and Porras (2002). van Noordwijk, Chandler and Tomich (2004) discuss the conceptual basis of rewards for environmental services from various perspectives and conclude that a lo - cation-specific blending of rights, obligations and rewards is needed as long as the essential ‘preconditions’ for market-based payments are not met in large parts of the developing world.

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