With regard to the question of what innovations are needed to make PES suitable for developing countries (my interpretation of Q 2.1 and 3.2), one of the major issues to address is the challenge of making PES systems work for smallholders. The transactions costs of dealing with many smallholders are high, which is why large-scale plantations can engage more easily.
Moreover, many PES systems deal only with legally recognized "owners" of the land, which further excludes many small-scale producers who rely on customary land rights.
Collective action can provide a mechanism for farmers to coordinate actions over large areas to provide environmental services such as biodiversity and watershed protection. Collective action also offers the potential to reduce the costs of monitoring and certification usually required to obtain payments for the services. However, the nature of the environmental services will influence the scale and type of collective action needed, the bargaining power of smallholders, and the investment or reinvestment requirements.
Working with Brent Swallow and Meine van Noordwijk, we have developed a conceptual framework that clarifies the inter-linkages between property rights, collective action, payment for environmental services, and the welfare of smallholder land users. The framework is centered on concerns of function and welfare effects of PES. The functional perspective clarifies the effects of collective action and property rights institutions on the supply of environmental services. The welfare 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 which smallholders are likely to be able to participate in payment for environmental services schemes. Greater consideration of the linkages between PES and other rural institutions can lead to more equitable outcomes, particularly by 1) suggesting how collective action can be used to overcome transaction costs and barriers to participation by smallholders, and 2) identifying mechanisms through which managers of small private parcels or areas of common property can be rewarded for environmental stewardship through PES.
The paper is available at http://www.capri.cgiar.org/wp/capriwp42.asp
Links and resources:
RPE/PES in the Agricultural and Food Sectors
Payment for Ecosystem Services and Food Security
Paying farmers for environmental services
FAO website on PES
Payments for environmental services - What role in sustainable agricultural development?
Climate Change Mitigation Finance for Smallholder Agriculture
Payment Schemes for Environmental Services in Watersheds
The new generation of watershed management programmes and projects
FAO's activities on watershed management and mountains