Payment for Environmental Services: Interactions with Property Rights and Collective Action

Global climate change and environmental degradation highlight the need for institutions of sustainability. In particular, there is increased interest in the potential of payments for environmental services (PES) to improve incentives for sustainable land management. Although smallholder land users can be efficient producers of environmental services of value to larger communities and societies, experience 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 smallholders. This chapter presents a conceptual framework to examine the inter-linkages between property rights, collective action, payment for environmental services, and the welfare of smallholder land users, examining how these play out in the contexts of carbon sequestration, biodiversity, and watershed functions. Greater consideration of the linkages between PES and other rural institutions can lead to more equitable outcomes, particularly by (1) suggesting how collective action can be used to overcome transaction costs and barriers to participation by smallholders and (2) identifying mechanisms through which managers of small private parcels or areas of common property can be rewarded for environmental stewardship through PES.