Payments for forest-based environmental services: A close look

- Payments for environmental services (PES) are only possible under certain property protection rules
- The joint production of timber and environmental services (ES) force the buyers of ES to make a critical choice
- They either incur transaction costs and offer differential payments to landowners
- Or they lose efficiencies by paying some landowners free money and not able to induce socially desirable land use changes

In this paper, I look at Payments for Environmental Services (PES) under property protection rules and in consideration of the marketability of these services. I then investigate the joint production process of timber and environmental services and identify a critical choice facing the buyers of forest environmental services-either incurring transaction costs by studying the opportunity costs of landowners and the environmental benefits their lands could provide, or losing efficiencies by paying some landowners free money and by not being able to induce socially desirable land use changes. Finally, I compare PES with other policy and market mechanisms that encourage the provisions of environmental services.