2. Payments for ecosystem services

While PES programs vary, the general pattern entails a voluntary transaction where a well-defined ecosystem service (or a land-use likely to secure that service) is ‘purchased’ by a (minimum of one) buyer from a (minimum of one) provider – hereafter called a seller (Shelley, Reference Shelley2011; Wunder, Reference Wunder2005). The usual practice is that a specific habitat of particular environmental significance – sometimes called an environmental hotspot – will have been identified by national or international environmental organizations and then a decision will have been taken to employ a PES scheme rather than try to convince national and/or local governments to undertake a new regulatory program. Often a PES program is necessitated by the fact that some governments are unwilling to take decisive action. Or, perhaps governments will indeed launch some regulatory program but then be unwilling (or unable) to carry out the necessary implementation and enforcement. We see that PES schemes might be the favored institutional innovation simply because of the absence of other options. Examples of PES schemes would be initiatives to reduce indiscriminant timber harvesting, to prevent overgrazing of fragile hillsides, or to modify other habituated practices.Footnote ¹ The negotiated arrangements must be assumed to offer sufficient economic incentives to locals so that their new forbearance toward nature is optimally remunerated.

We stress optimally remunerated as a reminder that any claims for the advantageous market-based properties of PES programs must rest upon the presumption that buyers of improved environmental behaviors (and expected outcomes) will pay no more than is exactly required on the part of sellers in order to get them (sellers) to comply with the necessary behavioral changes desired by the buyer. If this condition is not met, then buyers are necessarily overpaying for the new behaviors. Under such circumstances, the conditions for an efficient market are violated and PES schemes cannot be advanced as an ideal solution compared with other policy approaches. In recognition of this challenge, a common practice for securing efficiency in PES transactions is to introduce competitive tendering. In such programs, the buyer issues a call for certain practices on the part of local resource users and then accepts the most cost-effective offers.

Notice that PES programs entail a suite of operational rules, a mechanism of local governance, as well as implementation and enforcement agreements. The voluntary nature of PES programs means that there will always be the necessity for negotiation and bargaining between buyers and potential sellers of improved environmental outcomes. It is quite common that there will be just one buyer seeking negotiations with a large number of potential sellers of improved environmental practices and outcomes. Indeed the most common practice is that a number rural land owners (or users) in a particular location will be offered compensation by a buyer to alter their land-use practices. Arrangements are launched when a buyer decides the specific ecosystem services to be protected and then various sellers in a local setting are asked to make their offers concerning how much compensation would be required in order to comply with the desired flow of specific ecosystem services. In some instances, with knowledge of local arrangements, the buyer will initiate the process by making an initial offer thought sufficient to induce changes in traditional practices. The purpose is to draw individual agents into a new – and often abstract – game with other agents. Sometimes potential sellers may be bidding against other possible local interests in an effort to secure the new payments. While the opponent is not necessarily known, some interaction between the agents is inevitably underway through bargaining. A key claim for PES schemes is that they promote the protection of ecosystem services, rural development, and individual freedoms. By implication, this would mean that PES programs and the transactions therein are instituted in a special way. More specifically, the implication is that such programs re-constitute individuals in their interactions with nature. Is this claim credible? We now turn to that issue.

3. PES as a new instituted game

Efforts to understand the nature of the PES transaction bring us to the institutionalism of John R. Commons. In his work, Commons started with the transaction as the central unit of analysis – a move that has been developed most prominently, and to good effect, by Oliver Williamson (Reference Williamson2002, Reference Williamson2005). In contrast to what Commons regarded as the dubious hedonism of neo-classical economics – a consumer and a commodity that is giving of utility – Commons insisted that the central focus in economics must be the negotiational psychology that surrounds individual transactions. In particular, Commons was interested in the coming together of two ‘human wills in action’ – each looking to the future – with the intent of using the transaction as an instrument of newly attained advantage (Bromley, Reference Bromley2006; Ramstad, Reference Ramstad and Samuels1990, Reference Ramstad1996). That is, after all, why individuals engage in transacting: each hopes to gain something.

Commons distinguished three classes of transactions: (1) the bargaining transaction; (2) the managerial transaction; and (3) the rationing transaction.Footnote ² The bargaining transaction is the standard one most studied in economics. In the bargaining transaction, both parties – buyer and seller – are legal equals. By this is meant that each participant enjoys similar and reciprocated rights and duties in the eyes of the law (Commons, Reference Commons1990, Reference Commons1995). In the bargaining transaction, negotiational psychology concerns both persuasion and coercion. Persuasion is obvious, but the element of coercion is often overlooked. However, the hungry mother whose children cannot eat unless she works is not entirely free to resist entering into a bargaining transaction. Or she does so at some considerable cost. If there is a large ‘reserve army of unemployed’ then the buyer of labor stands in a considerable advantage compared to the many sellers of labor services. While the legal position of both parties is equal, their respective economic positions certainly vary.

Unlike bargaining transactions of everyday markets, managerial transactions occur inside of firms where the negotiational psychology concerns command and obedience. In managerial transactions, one party to the transaction is in a position of legal superiority, while the other party is a legal inferior. For instance, a firm can always refuse to hire an aspiring worker, and can dismiss one it finds unsuited. Workers cannot force a firm to hire them, nor – with some limited exceptions – may workers dispute a dismissal. Here the negotiational psychology is one of pleading and argument.

While first impressions may suggest that PES schemes represent a simple bargaining transaction, this would be a mistake. All bargaining transactions are embedded in – and function because of – an elaborate legal architecture that circumscribes these specific transactions. All bargaining (as well as managerial) transactions have the explicit force of the law behind them. With PES schemes the legal nature of the transaction is clouded by the fact that international environmental organizations, as buyers, may have a tenuous place in the legal scaffolding of the various countries in which they seek to purchase enhanced environmental outcomes. A second difficulty in transactions concerning ecosystem services concerns the ambiguous nature of the object of the transaction. Ecosystem services are not standard discrete commodities such as a carton of milk or a camera, and this fundamental difference can render established legal remedies quite problematic. The environmental transaction under discussion here is not always easily recognizable and clearly distinguishable from the natural environment for which it holds serious implications (Vatn, Reference Vatn2005; Vatn and Bromley, Reference Vatn1994).

In the standard bargaining transaction, there is explicit exchange of one known thing for another known thing – a commodity on one hand, and credible currency on the other. A buyer and seller come together and either agree or fail to agree on this specific exchange. We know that for such transactions to result in meaningful information – prices and quantities – there must be many potential buyers and many potential sellers.Footnote ³ We also know that information must be easily (cheaply) accessible and available to all participants, and that transaction costs must be low. These necessary conditions of efficiency in exchange are rarely present in the PES transaction.

It seems, on closer inspection, that PES schemes are not similar to bargaining transactions. Perhaps they resemble managerial transactions? However, this cannot be the case since managerial transactions take place inside of an existing authority structure – a firm or a government agency. In PES schemes, the buying entity holds no compelling legal obligations over the sellers of improved ecosystem services beyond terminating payments if performance is unacceptable.

We conclude that the PES transaction is sufficiently different from both the bargaining transaction and the managerial transaction that further conceptual clarification is called for. What sort of transaction is it?

4. PES as an inducing transaction

A proper understanding of the essential nature of the inducing transaction requires that we be very clear about its purpose. The animating purpose of the PES is not to make both participants better off. While that is the claimed result of such transactions, it is necessary to recall that such transactions arise for one reason and one reason only – to bring about a change in the environmental behaviors of potential sellers. The central intent of the transaction is to cause individuals to break existing production and consumption habits and to take new ones. At issue is the desire to overcome limiting factors on the side of both buyer and sellers. For the buyer, the limiting factor is a newly valorized environmental asset. For potential sellers the limiting factor is income. The task of the buyer is to identify essential constraints that keep individuals from protecting important natural values and then design the program accordingly. There can be no transaction if buyers are unable to modify the habituated behaviors of potential sellers. And there can be no transaction if potential sellers are not inclined toward changing their habituated behaviors.

Habits occupy contested terrain in economics. Veblen wrote that:

This emphasis on habits also emerges in the writings of both John R. Commons and Charles Sanders Peirce – the latter not an economist, but a logician (and founder of pragmatism) who situated habit breaking and habit taking at the center of his theory of human action (Commons, Reference Commons1990; Deacon, Reference Deacon2012; Hulswit, Reference Hulswit2002; Peirce, Reference Peirce, Hartshorne, Weiss and Burks1934; Reynolds, Reference Reynolds2002). Denying the prominence of habits in human behavior requires the assumption that individuals have great quantities of time available for calculating and optimizing across a large number of margins as they go about their daily tasks. This presumption is difficult to defend (Hodgson, Reference Hodgson1998, Reference Hodgson2004; Simon, Reference Simon, Hogarth and Reder1987). Human behavior is deeply habituated – and for good reasons – on the basis of long experience with what seems to work (Quellette and Wood, Reference Quellette and Wood1998). Only when confronted by startling doubt and surprise do individuals stop and reassess what they are doing – and why they are doing it (Bromley, Reference Bromley2006). This matter of deep habituation is fundamental to any supposition that scattered individuals out in remote areas can be easily dislodged by PES schemes from a lifetime – perhaps of several generations of predecessors – of habituated behaviors with respect to their natural surroundings.

To Peirce, habits are potentials (see also Hodgson, Reference Hodgson1997). Peirce's ‘habit’ is a general term referring to regularities of behavior arising in both physical and organic contexts. Habits are possibly actualized modes of behavior and action, and that actualization depends on embodied but contingent conditions and purposes, i.e. constraints. In other words, ‘The concept of constraint is, in effect, a complementary concept to order, habit, and organization, because it determines a similarity of class by exclusion . . . Constraints are what is not there but could have been, irrespective of whether this is registered by any act of observation’ (Deacon, Reference Deacon2012: 191–192).

The fact that those of us from the outside have now decided to valorize particular segments of some compelling physical surroundings does not imply that locals will easily abandon their settled patterns of interaction with, and necessary dependence on, that particular natural environment. Much of the literature on PES schemes stresses the pro-poor dimension of many of these programs, and this serves to buttress the program's appeal among the general population. However, in more affluent settings the logic suggests substantial local participation to ensure the willingness to overcome resistance and to engage in more adaptive habits in changing social–ecological settings (Folke, Reference Folke2006; Sagoff, Reference Sagoff2011).

We might usefully think of PES schemes as a game to be played with the objects of the buyer's interest. From that specific perspective, the point of playing the game is to create new durable habits among a specific population – and the purpose of bringing new habits is to alter behaviors that are now environmentally destructive. Habit breaking and habit taking can be understood as operating along a continuum.Footnote ⁴ Habit formation implies a cycle of a cue, a routine, and a reward:

But this view is too mechanical for Dewey who insisted that ‘a habit is impossible without setting up a mechanism of action, physiologically engrained, which operates “spontaneously”, “automatically”, whenever the cue is given’ (1988: 70). He writes:

Dewey's introduction of ‘will’ is central to our model of habit breaking and habit taking. A payment can be considered a cue for certain new behaviors, and increased monetary well-being is the reward gained from the trade. But of course in an efficient constellation of transactions between buyers and sellers, the end result must be that some (the ‘marginal’) sellers of new environmental behaviors are necessarily indifferent between their old behaviors in the absence of payments, and their new behaviors with payments.Footnote ⁵ If this condition is not met, buyers are paying too much for the new behaviors. The central point, if PES schemes are to earn the sobriquet of a market (or a market-like) transaction, is that for most sellers, the payment will represent exact compensation for the presumed sacrifice of abandoning old behaviors in exchange for new environmentally benign behaviors.

We insist, following Commons, that a habit is a reflection of both the ‘human will in action’ and the specific environment in which that will has been shaped. Notice that this tends to make habits contingent. Habits are jointly enacted into experience by customary transactions of the actors and particular environmental features. The environment comprises the contingent circumstances in which the will, particular actions, and agency are constituted. Dewey writes: ‘Habits incorporate an environment within themselves. They are adjustments of the environment, not merely to it’ (1988: 38) (emphasis in original). In other words, ‘We are the habit’ (ibid.: 24). This view is coincident with distributed and embodied theories of mind and problem solving (Clark, Reference Clark, Drobak and Nye1997; Hutchins, Reference Hutchins1996). Emerging from organic transactions between an organism and its environment, habit is both a repetitive routine and an artistic potential.

Consider the PES scheme in this light. Those who come into local communities with the hope of bringing about new environmental behaviors (new habits) need policy instruments suited to specific circumstances, particular qualities, and varying degrees of habituation. Dispensable – mechanistic – habits call for different types of interventions than when buyers are confronted by deeply embedded habits. These latter require a more complex set of alterations in the customary environment. Both the agent and the decision environment must be changed. PES schemes acquire much of their political appeal in virtue of relying on incentives to break old habits and constitute daring new ones.

However, this process of habit breaking and habit taking is more difficult than is generally imagined among advocates of PES schemes. Those who promote PES schemes pay insufficient attention to habits as the observable mirror of beliefs – as volitional emanations – rather than as mere automatic (mechanical) unreflective reactions.

Consider the distinction between the concepts of facilitation and inducement. There are a number of habituated actions that individuals might willingly jettison if only they could overcome a hurdle or barrier of some sort. Consider the family that is dependent on an old automobile that requires frequent repairs, and that delivers abysmal gas mileage. Such cars entail high operating costs that often strap poor families. Such cars are also said to be major sources of greenhouse gas emissions. Policies offering economic incentives to get such cars off the road for energy and climate reasons – so-called ‘cash for clunkers’ programs – offer cash incentives to trade in such cars in order to acquire a more fuel-efficient (and more reliable) mode of transportation. The driver wins – aggregate fuel efficiency edges up for a large number of such trades, and greenhouse gas emissions fall per mile driven. In fact, it seems there are a number of winners. The key winner of course is the individual whose habituated behavior (driving the clunker) is altered through an economic incentive. Notice that the driver of the improved car has no reason to revert to her former habit (driving the bad car).

But of course many habits are not so easily abandoned – and it is here that the inducing transaction enters. The purpose of the inducing transaction is to bring about specific behavioral changes when the individual agent has no interest in altering those existing behaviors. There is nothing in it for her. The PES scheme is an example of just such an inducing transaction. And this brings us to the temporal fragility of PES programs.

It is reasonable to assume that agents embedded in newly valorized ecosystems are currently acting in accord with their best understanding of their options and prospects. They can be considered rational maximizers in the context of the constraints and opportunity sets open to them. Why else would they be doing what they are doing if they did not think it was the best (the optimal) course of action? Their actions are not random or mechanical but rather are informed by their beliefs about the choices they face. As Peirce would have it, ‘Logic is the art of reasoning . . . Reasoning is the process by which we attain a belief which we regard as the result of previous knowledge . . . A Belief is a state of mind and the nature of a habit, of which the person is aware’ (Peirce, Reference Peirce1998: 11–12) (emphasis in original).

Not all habits are beliefs, but all beliefs are habits. And so the rational agent whose behavior is the subject of extreme interest by potential buyers is expected to change that very behavior without undergoing the bothersome process of acquiring new beliefs. The offer of payments is presumed to be sufficient to the task. However, payments can only be sufficient – inter-temporally durable – if those payments are accompanied by, indeed preceded by, new beliefs. If money is merely a cue, then – as above – there might emerge new temporary behaviors that some commentators wish to call new ‘habits’. But money is not, and cannot be, the reason for new beliefs – though money may be enough to bring forth new mechanical habits. That is, PES schemes may indeed change some habits, but money on offer cannot possibly change existing beliefs in the absence of good reasons for abandoning those beliefs. Payment is merely the necessary and momentarily sufficient reason to change behavior without the inconvenience of actually changing beliefs. Indeed, once the payment stops, those new temporary behaviors are generally the first casualty. When the cue is gone, the response also goes.

5. Inducing new reasonable habits

The popularity of PES schemes, especially in the poor countries of the developing world, introduces three additional considerations that remain under-theorized. These are changing realms of power, a necessary emphasis on purpose in the human condition, and the fundamental creativity of human action.

6. Closing observations

PES schemes seek to get close to individual decision makers and the world they inhabit, modify, and ultimately recapitulate. Inducing transactions, lying at the core of these PES programs, are here introduced as a fourth class of transactions that enrich the tri-partite scheme of John R. Commons. Inducing transactions work at the volitional core of what it means to be a rational agent. In seeking to change the behavior of individuals, inducing transaction end up changing the very environment that gave rise to the human behaviors now thought to be in need of modification. The agents of interest are nothing but the acquired habits of their local environment, and that local environment is nothing but an efflorescence of a mélange of individual habits. The policy problem is that old habits are hard to break. More seriously, new habits are harder to take.

Programs for paying individuals to provide ecosystem services bring together two distinct epistemic communities. Those in the position of buyer seek to convince local resource users to stop imposing harm on parts of the natural system in which they (the users) are embedded. These local individuals are primarily concerned with survival under difficult circumstances. They now, quite by accident, find themselves embedded in an ecosystem that holds enormous symbolic – perhaps ceremonial is the correct Veblenian term – value for those (buyers) from far-away places. Buyers have a tendency to find nature more compelling than local people, while local resource users (potential sellers) find that securing a livelihood is more compelling than protecting specific attributes of nature that has been recently valorized by others. We see that both parties to such transactions bring different ontological and epistemic presumptions to any possible transaction. For buyers, the guiding purpose is to protect nature. For sellers, nature is not for protecting but for providing resource – and livelihood – flows. It is not often that PES schemes linking ecosystem services and rural livelihoods can bring these two epistemic communities closer together. It can happen, but there are many difficulties to be overcome (Arriagada et al., Reference Arriagada, Ferraro, Sills, Pattanayak and Cordero2012).

Before that can happen however, one final caveat is in order. Often, the degradation of nature is not plausibly traceable to flawed incentives faced by individuals embedded in particular ecosystems. Rather, the explanation lies elsewhere. An obvious example comes from the long-running concern with degradation associated with common property regimes. Starting with Garrett Hardin's mis-named allegory of the commons, the standard narrative blamed resource degradation on the allegedly ‘flawed’ property regimes out in the villages and hillsides of the developing world. This simple account is flawed (Bromley, Reference Bromley1991; Larson and Bromley, Reference Larson and Bromley1990). The standard solution was that the commons must be privatized so that market forces would save it from destruction. It was claimed that only private property rights would solve deforestation, rectify degraded rangelands, protect wildlife, restore desultory wetlands, protect endangered species, create incentives for investment in agricultural productivity, and rectify much else that afflicts the developing world. In the extreme, writers such as Hernando De Soto insisted that one defeats poverty by formalizing land titles (2000). The empirical support for such claims is non-existent (Bromley, Reference Bromley2009; Chang, Reference Chang2011; see also Kerekes and Williamson, Reference Kerekes and Williamson2008).

In fact, there are plausible reasons to believe that resource degradation is often caused by flawed economic circumstances well beyond the village of much interest in such schemes. After all, if the economic climate in a country is so seriously defective in terms of creating plausible livelihood strategies, then more profound work at that level may create opportunities that would preclude currently destructive environmental practices among the poor and dispossessed. This puts an extra burden on inducing transactions as they seek to bring about beneficial habit breaking and habit taking. The achieved changes might just be irrelevant to the larger problem. Indeed, there are plausible trajectories of resource degradation even under the very best conditions of individual behavior on the part of those embedded in poor habitats. With a few reasonable assumptions about flawed markets for agricultural inputs and agricultural produce, it is possible to set in motion a constellation of behaviors out on the ground that will generate resource degradation despite the very best intentions of local resource users. Degradation is the result of economic processes that have nothing to do with the motives of the poor embedded in a particular ecosystem. Rather, environmental degradation is the result of market failures situated between the rural village and the urban market. This means that efforts focused on the behavior of individuals situated in ecosystems of compelling interest to environmental organization may have no discernible effect on behaviors with respect to nature (Bromley, Reference Bromley2008). If individual motives and desires are not implicated in destructive behaviors then rewards for different (better?) motives and desires are seriously misplaced.

To put the matter another way, constructive or destructive environmental behaviors very often arise because of a flawed economic environment within which rural households are situated. Individuals are often powerless to modify their behavior even with the promise of particular rewards for doing so. The system is stacked against them. In such circumstances, deforestation has little to do with flawed property rights, with relative prices, with the construction of roads, or indeed with all of the usual suspects. Deforestation happens because national governments have their reasons for making sure that it happens (Bromley, Reference Bromley2006; Hiedanpää et al., Reference Hiedanpää, Kotilainen and Salo2011). After all, governments can earn much-needed foreign exchange, and they can relieve landlessness by moving poor farmers to recently cleared forested areas. We see that the standard prescriptions for stopping deforestation arise from flawed diagnoses. If the wrong diagnosis is made, the medicine cannot possibly do good work. Diabolically speaking, the devil is always in the details.