Determining when payments are an effective policy approach to ecosystem service provision

There are several policy tools available for the provision of ecosystem services. The economic characteristics of the ecosystem service being provided, such as rivalry and excludability, along with the spatial scale at which benefits accrue can help determine the appropriate policy approach. In this paper we provide a brief introduction to ecosystem services and discuss the policy tools available for providing them along with the dimensions, political feasibility and appropriateness of each tool. Throughout the paper we focus primarily on payments as a mechanism for ecosystem service provision. We present a framework for determining the characteristics of an ecosystem service and when payments are a viable policy tool option based on the characteristics. Additionally, we provide examples of when payments do not provide a socially desirable level of ecosystem benefits. We conclude with a summary of policy recommendations, specifically desirable property rights and payment types based on the particular classification of an ecosystem service. We also discuss the advantages of creating monopsony power to reduce transaction costs, delineating and bundling ecosystem services and utilizing existing intermediaries.