Payments for Ecosystem Services and Wealth Distribution

•A model for willingness to pay and willingness to accept in payments for ecosystem services.•Wealth disparity between ecosystem services buyers and sellers can increase transactions.•Payments for ecosystem services can be socially progressive and mitigate economic inequality.

Payment for ecosystem services (PES) has come to be regarded as a promising market-based policy instrument to internalize environmental externalities. The potential of PES is linked to the relationship between the willingness to pay (WTP) of ecosystem service buyers and the willingness to accept (WTA) of ecosystem service providers. This study uses an economic model to analyze factors that influence aggregate WTP and WTA in a PES scheme. We demonstrate that wealth disparity between ecosystem services buyers and providers can increase transactions. Furthermore, when wealth disparity exists between the buyers and sellers, the wealthier population would contribute more into the program and the poorer population would benefit more from it. Under these conditions, PES can be socially progressive and mitigate preexisting economic inequality. In this sense, the economic model provides justification for integration of PES and poverty alleviation programs. Results of our study indicate that PES is not a universally applicable conservation tool, and there is a need for a more targeted approach to the design and application of PES.