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

Payments for environmental services (PES) are increasingly discussed as appropriate mechanisms for matching the de mand for environmental services with the incentives of land users whose actions m odify the supply of those environmental services. While there has been considerable discussion of the institutional mechanisms for PES, relatively little attention has been given to the inter-relat ionships between PES institutions and other rural institutions. This paper presents and builds upon the proposition that both the function and welfare effects of PES institutions depend crucially on the co-institutions of collective action (CA) and property rights (PR). Experience from around the developing wo rld has shown that smallholder land users can be efficient producers of environmental services of value to larger communities and societies. However, experience also shows that the international and national institutions that govern PES are often designed in ways that entail transaction costs that cannot be feasibly met by individual sma llholders. Collective action can provide a mechanism for farmers to coordinate actions over large areas to provide environmental services such as biodiversity and watershed protection. Collective action also offers the potential to reduce the costs of monitoring and certification usually required to obtain payments for the services. However, the nature of the environmental services will influence the scale and type of collectiv e action needed, the bargaining power of smallholders, and the investment or reinvestment requirements. The relationships between property rights and environmental services are more complex. The creation of PES institutions it self actually represents the creation of new forms of property and responsibility, with all of the tensions a nd tradeoffs that are entailed. How are balances struck, for exampl e, between people’s responsibilities not to pollute and the need to compensate people fo r foregoing polluting activ ities What about balances between constitutional rights to safe environment and the right to earn a livelihood In carbon sequestration arrangements, secure property rights are often seen as a necessary pre-condition for bi nding contracts, even though co llective forms of property may generate high quality environmental se rvices. On the other hand, environmental services can influence property rights, notab ly where land or wate r tenure are given as rewards for certain types of services, la nd use, or stewardship. The type of environmental service, and th e possibility of exclusion it provides, is also likely to influence the type of property rights.

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