International Review of Environmental and Resource Economics > Vol 7 > Issue 3–4

Incentivizing the Provision of Ecosystem Services

Nick Hanley, Department of Geography and Sustainable Development, University of St. Andrews, Scotland, , Ben White, School of Agricultural and Resource Economics, University of Western Australia, Australia,
Suggested Citation
Nick Hanley and Ben White (2014), "Incentivizing the Provision of Ecosystem Services", International Review of Environmental and Resource Economics: Vol. 7: No. 3–4, pp 299-331.

Publication Date: 18 Dec 2014
© 2014 N. Hanley and B. White
Environmental Economics
Payment for Ecosystem ServicesAgri-environmental policyAdverse selectionContractsUn-observed effort


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In this article:
1. Introduction: What is a PES Scheme? 
2. The Economic Problem of Designing PES Schemes 
3. Should We pay for Actions or Outcomes? 
4. Theoretical Models of Ecosystem Service Contracting for Actions and Outcomes 
5. How Can We Measure the Success of PES Programmes? 
6. Conclusions and Future Research Needs 


Payment for Ecosystem Service schemes have become widely discussed in the academic literature and in policy circles over the past 10 years, and indeed an increasing number of schemes have been put in place across the world. This paper has four objectives. First, to explain the idea of a Payment for Ecosystem Service scheme to those not working in this area. Second, to set out a formal model which shows the effects of incomplete information in terms of deviations from a first-best outcome, and which allows the relative merits of outcome- and actionsbased schemes to be compared. Third, to explain why measuring the actual performance of any Payment for Ecosystem Service scheme is difficult. Finally, to set out what we see as the main research needs to inform policy development in the near future.