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CID Graduate Student and Postdoctoral Fellow Working Paper No. 15

Lessons Relearned: Can Previous Research on Incentive-Based Mechanisms Point the Way for Payments for Ecosystem Services?

B. Kelsey Jack, Carolyn Kousky, and Katharine Emans Sims

January 2007

A publication of CID's Sustainability Science Program

Abstract

Payments for ecosystem services (PES) are policies in which individuals or communities are compensated for undertaking actions that increase the provision of ecosystem services such as water purification, flood mitigation, and carbon sequestration. PES policies rely on incentives to induce behavioral change, and can thus be considered part of the broader class of incentive- or market-based mechanisms for environmental policy. By recognizing PES programs as incentive-based mechanisms, policy-makers can draw on insights from the substantial body of accumulated knowledge about these instruments in order to gain a better understanding of the conditions under which PES schemes are likely to be environmentally effective, cost-effective, and equitable. In this paper, we offer six lessons from theoretical and empirical research on incentive-based mechanisms that we think deserve explicit consideration when designing and evaluating PES policies.

Keywords: environmental policy, market-based instruments, payments for ecosystem services, incentive payments, environmental benefits

JEL codes: Q5, Q28, Q56, Q57

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