Show Me the Money: Do Payments Supply Environmental Services in Developing Countries?

Many of the services supplied by nature are externalities. Economic theory suggests that some form of subsidy or contracting between the beneficiaries and the providers could result in an optimal supply of environmental services. Moreover, if the poor own resources that give them a comparative advantage in the supply of environmental services, then payments for environmental services (PES) can improve environmental and poverty outcomes. While the theory is relatively straightforward, the practice is not, particularly in developing countries where institutions are weak. This article reviews the empirical literature on PES additionality by asking, “Do payments deliver environmental services, everything else…