Food and Agriculture Organization of the United Nations- FAO
Payments for Environmental Services (PES) from Agricultural Landscapes
Financial sustainability
Transaction costs
Keeping transaction costs low relative to the value of the transaction will optimize the use of resources collected from beneficiaries and ensure long term survival of the scheme. These costs range from engaging buyers and targeting providers of environmental services(21), contracting them and monitoring their compliance, collecting and distributing payments and liaising with the programme’s facilitators and partners. The key in keeping all these operations relatively cheap is to keep arrangements simple and to make the most of partnerships with institutions with already existent capacity for the different tasks required (see also section on The right partners ).
For the participants, transaction costs range from preparing application to enter the programme, to implementing the land use changes required. A commonly used strategy to reduce these costs is in making a group application and signing group contracts, although the latter can raise compliance problems if peer pressure isn’t strong enough.
While participants can generally measure easily whether the benefits of participating in the programme are high enough to compensate the investment they have made, for the PES programme developers this is not as easy at the initial stages, as costs depend on how well the scheme takes shape, unforeseen obstacles appear and unpredicted costs arise. Sometimes, overall transaction costs can be higher than the cost of payments to providers.
(21) For more on this, see Abatement and Transaction Costs of Carbon-Sink Projects Involving Smallholders, Oscar Cacho and Leslie Lipper, ESA Working Paper No. 06-13 December 2006
