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Payments for environmental services (PES) are increasingly discussed asappropriate mechanisms for matching the demand for environmental services with theincentives of land users whose actions modify the supply of those environmentalservices. While there has been considerable discussion of the institutional mechanismsfor PES, relatively little attention has been given to the inter-relationships between PESinstitutions and other rural institutions. This paper presents and builds upon theproposition that both the function and welfare effects of PES institutions depend cruciallyon the co-institutions of collective action (CA) and property rights (PR).Experience from around the developing world has shown that smallholder landusers can be efficient producers of environmental services of value to larger communitiesand societies. However, experience also shows that the international and nationalinstitutions that govern PES are often designed in ways that entail transaction costs thatcannot be feasibly met by individual smallholders. Collective action can provide amechanism for farmers to coordinate actions over large areas to provide environmentalservices such as biodiversity and watershed protection. Collective action also offers thepotential to reduce the costs of monitoring and certification usually required to obtainpayments for the services. However, the nature of the environmental services willinfluence the scale and type of collective action needed, the bargaining power ofsmallholders, and the investment or reinvestment requirements.The relationships between property rights and environmental services are morecomplex. The creation of PES institutions itself actually represents the creation of newforms of property and responsibility, with all of the tensions and tradeoffs that areentailed. How are balances struck, for example, between people’s responsibilities not topollute and the need to compensate people for foregoing polluting activities? What aboutbalances between constitutional rights to safe environment and the right to earn alivelihood?In carbon sequestration arrangements, secure property rights are often seen as anecessary pre-condition for binding contracts, even though collective forms of propertymay generate high quality environmental services. On the other hand, environmentalservices can influence property rights, notably where land or water tenure are given asrewards for certain types of services, land use, or stewardship. The type ofenvironmental service, and the possibility of exclusion it provides, is also likely toinfluence the type of property rights.This paper presents a conceptual framework that clarifies the inter-linkagesbetween property rights, collective action, payment for environmental services, and thewelfare of smallholder land users. The framework is centered on concerns of functionand welfare effects of PES. The functional perspective clarifies the effects of collectiveaction and property rights institutions on the supply of environmental services. Thewelfare perspective considers smallholders as one of several potential sources of supply, sometimes directly competing against large landowners and public sector providers.Using this conceptual framework can help to identify conditions under whichsmallholders are likely to be able to participate in payment for environmental servicesschemes. Greater consideration of the linkages between PES and other rural institutionscan lead to more equitable outcomes, particularly by 1) suggesting how collective actioncan be used to overcome transaction costs and barriers to participation by smallholders,and 2) identifying mechanisms through which managers of small private parcels or areasof common property can be rewarded for environmental stewardship through PES.
