Figure 1 depicts the extension of the Coasean approach, in which contextual factors in-teract with PES policy design and thereby determine the PES outcomes.
The Coasean policy approach implies the normative vision of assessing a policy based on its economic efficiency as the sole relevant PES outcome. Efficiency in this context is principally defined as social efficiency, whereby social economic welfare is maximized.
In this equilibrium, the social marginal benefits of an intervention equal the social mar-ginal costs. The social marmar-ginal costs include, for example, the marmar-ginal opportunity cost of foregone benefits of resource use and the marginal transaction costs of a policy intervention. A policy intervention is environmentally effective, but not necessarily so-cially efficient, if it provides environmental additionality, meaning that it incentivizes the provision of additional ecosystem services that would not have been provided oth-erwise (Engel et al., 2008; Jack et al., 2008).
PES policy design
Social efficiency
Environmental effectiveness Equity Environmental
context
Socio-economic, and-cultural context Political context
Context dynamics
Figure 1: Conceptualization of PES. PES outcomes with non-dashed frames are considered in the Coasean approach; contextual factors and PES outcomes with a dashed frame are based on the new conceptualization of PES; contextual factors with a grey frame are not addressed in this study.
Adapted from Jack et al., 2008
Critics of conventional economic theory argue that contextual factors, which are gener-ally disregarded under the Coasean approach, interact with the policy design and hence determine the PES outcome. Jack et al. (2008) and Muradian et al. (2010) identify four groups of contextual factors: environmental context, socio-economic and socio-cultural context, political context and context dynamics. In this study, we address aspects of the environmental, socio-economic and socio-cultural context, whereas we disregard the political context and context dynamics4. With respect to PES outcomes, we extend the Coasean approach by assessing the equity considerations of PES implementation.
1.3.1 Uncertainty regarding environmental additionality
The provision of environmental additionality induced by a policy is a necessary condi-tion for PES implementacondi-tion. However, practicondi-tioners and policy makers face substantial uncertainty regarding environmental additionality due to the considerable complexity of conservation activities (management intensity), ecosystem functioning and ecosys-tem service provision (Muradian et al., 2010; Jack et al., 2008; Pascual et al., 2010). This uncertainty can be partly explained by the non-linearity of the marginal benefits of eco-system service provision (Jack et al., 2008).
Marginal environmental benefits are constant when, for example, the first tree on a monoculture plantation provides the same amount of ecosystem service provision, such as pest control (through an increase in bird diversity), as the 50th tree. This would imply that environmental additionality does not depend on the initial conditions; hence, the implementation of a uniform per-unit payment is a feasible PES scheme to achieve a conservation goal. However, for many ecosystem services, changes in management in-tensity induce a non-linear change in environmental benefits due to, for example, threshold effects in ecosystems (Jack et al., 2008). The level of environmental addition-ality thus depends on the initial properties of the ecosystem (environmental context).
The complexity in the PES policy design with respect to non-linearity is further fostered by the fact that the marginal opportunity costs of conservation are also non-constant.
For example, the forgone benefits due to the first tree planted on a monoculture planta-tion are not identical to those of the 50th tree. Assuming that it is possible to discrimi-nate among resource users with respect to the compensation level, the non-linearity
4 For further discussion of the political context, see Jack et al., 2008.
makes it possible to identify sections of the management intensity gradient at which cost-effective options for conservation activities arise (Clough et al., 2011; Pascual et al., 2010; Jack et al., 2008).
1.3.2 Motivation crowding
In addition to the increasing relevance of PES in practice, a growing number of scholars criticize the utilitarian, market-based rationales for conservation underlying the Coasean approach, in which ecosystem values are reduced to a single exchange value. In this context, socio-economic and socio-cultural aspects associated with the provision of ecosystem services are denied (Muradian et al., 2010; Kosoy and Corbera, 2010 see also McCauley, 2006). One of the most common arguments of critics is that incentives such as PES may undermine social and ethical motives to conserve ecosystem services and hence may lead to a counterproductive or less efficient outcome than that predicted by conventional economic theory (Frey and Jegen, 2001; Bowles, 2008). Critics primarily refer to the motivation crowding theory (Frey, 1994; Frey, 1997; Frey and Oberholzer-Gee, 1997), which states that monetary incentives affect the outcome not only by alter-ing the costs and benefits of providalter-ing the desired activity (price effect) but also by shaping the intrinsic motivation to contribute to the desired outcome (crowding effect).
Accordingly, monetary incentives may either strengthen social and ethical motives (crowding in) or undermine such motives (crowding out).
Empirical evidence has identified a number of psychological mechanisms that may ex-plain crowding effects in the provision of public goods that are induced by monetary incentives (Narloch et al., 2012; Rodriguez-Sickert et al., 2008; Cardenas et al., 2000;
Vollan, 2008; for an overview, see Rode et al., 2014). One line of literature assumes that incentives are part of the way a situation is represented and that these contextual ma-nipulations affect behavior (Tversky and Kahnemann, 1981; Bowles, 2008). In the short run, PES may serve as frame shifting by changing the cognitive concept of the conserva-tion logic toward economic reasoning, thus disregarding pro-nature and social motives (Bowles, 2008; Gómez-Baggethun et al., 2010; Vatn et al., 2010; García-Amado et al., 2013). In the long run, this frame shifting might diminish environmental values and mindsets (Rode et al. 2014). Besides these forms of crowding out, frame shifting might also result in crowding in. With respect to pro-social motives, frame shifting may serve
as a signal, highlighting that conservation activities are socially esteemed and enforcing social norms. With respect to pro-nature motives, frame shifting may activate environ-mental considerations in the short run and strengthen environenviron-mental values and mind-sets in the long run (Sommerville et al., 2010).
1.3.3 Equity considerations
Ignoring the role of the initial allocation of property rights to achieve efficiency gains, the Coasean policy approach disregards equity considerations in the implementation of PES. Driven by the normative vision of efficiency improvements as a guiding principle, the “pro-poor” targeting of PES has been investigated with regard to the required condi-tions (such as secure property rights, reduced transaction costs, and an increased ca-pacity for market participation) for poor landowners to become efficient providers of ecosystem services and hence to participate in the PES program (Pascual et al., 2010;
Grieg-Gran et al., 2005; Landell-Mills, 2002; Pagiola et al., 2005). Critics argue that this a priori rationale of efficiency as the sole outcome precludes a better understanding of the relationship between equity and efficiency (Pascual et al., 2010; Muradian et al., 2010;
Muradian et al., 2013; Landell-Mills and Porras, 2002). Evidence shows that in the ma-jority of PES schemes, poor landholders tend to be excluded from participation (proce-dural justice) or lack adequate benefits generated through program participation (dis-tributional justice) (Zbinden and Lee. 2005; Grieg-Gran et al., 2005; Sommerville et al., 2010; Corbera et al., 2007). Thus, practitioners (e.g., NGOs, government agencies) in-creasingly contend that PES should function as a multipurpose instrument for both eco-system conservation and poverty alleviation to secure the political and social legitimacy of the intervention (Landell-Mills and Porras, 2002; Pagiola et al., 2005; Grieg-Gran et al., 2005; Corbera et al., 2007; Muradian et al., 2010; Corbera and Pascual, 2012;
Narloch et al., 2013; Muradian et al., 2013). Because PES schemes are often framed within broader development interventions that are explicitly intended to target vulner-able groups, practitioners are confronted with the need to consider equity and fairness when designing PES schemes. Moreover, the implicit fairness criteria of the PES scheme (Pascual et al., 2010) and the distribution of benefits and costs among landholders might be perceived as unfair by members of society or other stakeholders, thus decreas-ing the social legitimacy of the program (Sommerville et al., 2010; Corbera et al., 2007;
Kosoy et al., 2007; Petheram and Campbell, 2010).
Pascual et al. (2010) conceptualize the interdependency between efficiency and equity and elaborate the role of different implicit fairness criteria in PES schemes. As depicted in the previous section, incentives are embedded in complex social systems and interact with ethical and social motives (Bowles, 2008; Frey and Jegen, 2001; Cardenas and Car-penter, 2008; Pascual et al., 2010). The social notion of what distributive rule (implicit fairness criterion) is perceived as fair may thus determine conservation behavior and, ultimately, the equity/ efficiency relationship. Because the perception of fairness is sub-stantially determined by the socio-economic (e.g., status in society) and socio-cultural contexts, manifold fairness criteria exist that may vary significantly across agents (Pas-cual et al., 2010). Pas(Pas-cual et al. (2010) identify a number of PES design principles that differ considerably in their implicit fairness criterion or in the relative weights that they assign to equity and efficiency concerns. Policy designs range from PES schemes that primarily favor equity concerns at the cost of efficiency to schemes that primarily focus on efficiency concerns at the expense of equity.