Payment for Ecosystem Services (PES) is a new instrument that seeks to achieve environmental conservation that is also reconciled with the production of social benefits. PES efficiency is derived from its cost effectiveness and its ability to correct market externalities. At the same time, many forests and ecosystems are occupied by indigenous, traditional communities and small landowners whose life conditions and social recognition may be improved by PES. The aim of this chapter is to discuss the specific efficiency and equity implications of ecosystem payments in order to better understand how such policies ought to be designed. PES has been envisaged as a promising instrument for environmental conservation, especially in mega-diverse countries such as Brazil. The popularity of PES in the literature as well as the increase in practical experiences are due to the perceived failure of traditional environmental policy tools, namely command and control regulation, to protect areas and promote integrated conservation and development projects. PES bears a number of advantages. First, PES schemes are relatively inexpensive to design and implement. Secondly, these schemes provide opportunities for local inhabitants to continue living in biodiversity-rich ecosystems. PES schemes also foster links between service beneficiaries and providers. These links allow providers to recover costs incurred for conservation of ecosystems which services are enjoyed by beneficiaries. PES projects may focus on efficiency and therefore be market oriented or they can be created by governments and contemplate other goals, as will be discussed below.
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