Constructing Markets for Ecosystem Services: Limitations of development interventions and a role for conservation performance payments

Conservation biologists, policy makers, and citizens have identified the protection of native ecosystems in low-income nations as a global social objective. Among the more popular initiatives to achieve this objective is the use of development interventions in the peripheral areas of endangered ecosystems. Such interventions indirectly provide desirable ecosystem services through two mechanisms: (1) by re-directing labor and capital away from activities that degrade ecosystems (e.g., agricultural intensification); and (2) by encouraging commercial activities that produce ecosystem services as joint products (e.g., ecotourism). By examining the economics of such interventions and the available empirical evidence, I argue that development interventions are hindered by: (1) the indirect and ambiguous conservation incentives that they generate; (2) the complexity of their implementation; and (3) their lack of conformity with the temporal and spatial dimensions of ecosystem conservation objectives. In contrast, paying individuals or communities directly for conservation performance may be a simpler and more effective approach. In recent years, there has been widespread experimentation with contracting approaches to ecosystem conservation. Contracting approaches create markets through which individuals who provide ecosystem services can benefit from their efforts. An examination of current contracting initiatives indicates that they have many advantages over more popular indirect development interventions. Conservation contracting can: (1) reduce the set of critical parameters that practitioners must affect in order to achieve conservation goals; (2) permit more precise targeting and more rapid adaptation over time; and (3) strengthen the links between individual well-being, individual actions, and habitat conservation, thus creating a local stake in ecosystem protection. In situations where performance payments are unlikely to work, indirect development interventions are also unlikely to work. Thus despite the potential barriers to developing a system of conservation contracts in low-income nations, the analysis suggests that performance payments have the potential to vastly improve the way in which ecosystems are conserved in low-income nations.