Abstract
In this paper, I look at Payments for Environmental Services (PES) under property protection rules and in consideration of the marketability of these services. I then investigate the joint production process of timber and environmental services and identify a critical choice facing the buyers of forest environmental services—either incurring transaction costs by studying the opportunity costs of landowners and the environmental benefits their lands could provide, or losing efficiencies by paying some landowners free money and by not being able to induce socially desirable land use changes. Finally, I compare PES with other policy and market mechanisms that encourage the provisions of environmental services.
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