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Cost-effective provision of environmental services: the role of relaxing market constraints*

Published online by Cambridge University Press:  26 January 2010

BEN GROOM  and
CHARLES PALMER
BEN GROOM
Affiliation:
Department of Economics, School of Oriental and African Studies, Thornhaugh St, Russell Square, London WC1H 0XG, United Kingdom. Tel: +44 (0)20 78984730. Email: bg3@soas.ac.uk
CHARLES PALMER
Affiliation:
Chair of Environmental Policy and Economics, Institute for Environmental Decisions, ETH Zürich, Zürich, Switzerland. Email: C.Palmer1@lse.ac.uk
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Abstract

Ferraro and Simpson (2002) argue that when markets are competitive, payments for environmental services (PES) are more cost-effective in achieving environmental goals than more indirect approaches such as subsidies to capital. However, when eco-entrepreneurs face non-price rationing in input or output markets, as is typical for credit in developing countries for example, we show that interventions which relax constraints can be more cost-effective than PES. One corollary of this is that such indirect approaches are preferred to PES by interveners (e.g., donors) and eco-entrepreneurs alike. Both of these outcomes are more likely when constraints are severe. This has implications for schemes with dual environment and poverty alleviation objectives.

Type
Research Article
Information
Environment and Development Economics , Volume 15 , Issue 2 , April 2010 , pp. 219 - 240
Copyright
Copyright © Cambridge University Press 2010

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