Payments for environmental services: Coasian transactions or something else?

Payments for environmental services (PES) are based on the beneficiary-pays rather than the polluter-pays principle. In this paper we argue that this is a key factor for identifying what ecosystems are amenable to PES. We build a general equilibrium framework to identify what ecosystems are amenable to PES as an efficient solution. In economies where society has a higher degree of environmental responsibility and produces a low level of alternative land services income efficient transfers cannot be financed with voluntary payments. There- fore PES programs must be seen as environmental subsidies (to ES providers) and must be combined with a user fee (on ES users). We use Costa Rica’s Payments for Environmental Services program (PSA) to illustrate our findings. We find that the efficient payments for forest conservation are higher than the value reported by Pagiola (2008). Implementing an efficient system implies an increase in payments for forest conservation by 4.15-fold.