Neo-classical economics doesn’t have all the answers for conserving watersheds

Paying people to conserve environmental services is not as easy as it first seemed, say Daniel Cremaschi, Rodel Lasco and Rafaela Delfino


According to neoclassical economic assumptions, the concept of ‘payments for environmental services’ is based on the principle that people located in places of great importance for the provision of such services—such as forested upland areas of watersheds—are compensated for maintaining and securing them (preserving the forest, for example) while those who receive the benefits of a well-maintained environment (in the case of watersheds, typically individuals and industries downstream who use the water) should pay for its protection.

In this way of thinking, the potential buyers of the environmental services make a voluntary contract with the people who manage the land upstream to compensate them for switching to other, less environmentally degrading land uses or refraining from degrading the land in the first place.

Layawan River, the Philippines, environmental, ecosystem, services

Layawan River, the Philippines

Taking into account that the benefits that land managers (usually referred to in this concept as ‘service providers’) obtain from environmental services are often less than what they would obtain from intensive, less eco-friendly land uses, bargaining has to occur between them and the potential buyers.

At the very least, the service providers should be compensated for the cost of the loss of the opportunity to manage the land more profitably. Furthermore, the maximum amount of money paid by the people downstream (often referred to as ‘beneficiaries’) needs to be less than the value of the benefits they would obtain for the protection, conservation and provision of environmental services or they would not be willing to pay.

While all this seems simple enough, our study of payments’ schemes in four watersheds in the Philippines (Bakun, Maasin, Sibuyan and Baticulan) found that in practice it hasn’t been easy to achieve, largely owing to the huge lack of knowledge about how to quantify environmental services and, in the cases where it might have been possible to do so, the costly and time consuming nature of the tasks. The schemes were mostly characterized by incomplete information, lack of technical capacities and high monitoring costs. Most were based on myths or presumed relationships between land use and watershed services.

Further, unclear institutional arrangements and goals caused schemes to work inefficiently. Institutions could enable or hinder a scheme’s successful implementation and the role of the local government as an intermediary between providers and beneficiaries was crucial in establishing schemes, particularly in disseminating information and educating key stakeholders. If the local government was an inefficient intermediary, so was the scheme.

We noted, too, that non-governmental organizations—such as the Bakun Indigenous Tribes Organization in Bakun and the Kahublagan Sang Panimalay Foundation in Maasin—were important in maintaining social cohesion and encouraging participation in the schemes.

From our study, we concluded that there were some key issues that should be considered in the implementation of existing and new schemes if they were to work effectively and efficiently and achieve their goal of preserving environmental services.

First, scheme designers needed to take into account the institutional and social conditions prevailing in the area. An intervention needed for a more efficient scheme usually entails a degree of coordination between stakeholders and strategic allocation of roles and responsibilities among institutions, both government and non-government.

Second, it was important to understand the effect of uncertainty in the decision-making process and the design of schemes, which is caused by limited knowledge about the interaction between environmental properties and provision of services.

Lastly, schemes needed to be constantly revised and improved in order to sustain the flow of watershed services over time as a basis for sustainable development.

In short, we found that while the concept of payments for environmental services was simple (‘user pays’) the actual implementation involved a complex network of social interactions that required careful management if we wanted a healthy environment that provided services of good quality.


Edited by Robert Finlayson


Read the article

Cremaschi DG, Lasco RD, Delfino RJ. 2013. Payments for watershed protection services: emerging lessons from the Philippines. Journal of Sustainable Development 6(1):90–103.




This work is related to the CGIAR Research Program on Forests, Trees and Agroforestry


Rob Finlayson

Robert Finlayson is the Southeast Asia program's regional communications specialist. As well as writing stories for the Centre's website, he devises and supervises strategies for projects and the countries in the Southeast Asia region, including scripting and producing videos, supervising editors and translators and also assisting with resource mobilization.

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