An institutional perspective on PES intermediaries

From an institutional perspective, a PES scheme constitutes a system of institutions and human actors (Vatn, 2005; 2010). It consists of institutions, i.e. rules that govern human interactions, and actors that shape or reshape institutions. In a PES scheme, the intermediary is shaped by, and does shape, institutions and human agency. Moreover, the selected cases suggest that intermediaries in PES are initiated – they are intentionally established rather than emerging spontaneously from buyer-seller relations (Pagiola, 2008; Engel, Pagiola and Wunder, 2007).

Different kinds of human rationality forge the institutional structure of PES schemes and with it the role and shape of the intermediary. Individual utility maximization, which is often implicitly assumed in standard PES schemes, thus represents only one human behavioural regularity – there are others as well. Humans, for example, may decide conditionally on the behaviours of others whether to take part in activities for common interest such as for natural forest management (Rustagi et al., 2010) or just refuse to trade things they consider valuable, such as for biodiversity conservation (Spash and Hanley, 2005).

In turn, different institutional contexts affect our rationalities as well (Vatn, 2005). Market-based instruments not only commodify ecosystem services but also foster self-interested rationalities of providers and users. In repeated externally induced PES to reward agro-biodiversity conservation in the Andes, for instance, farming communities who are already exposed to increased comercialization of the farming system tend to behave what is

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considered individually rational in economic terms (Narloch et al., 2010). On the other hand, one may expect that land users whose conservation activities are supported by a state-based compensation scheme, such as with public funds from a tax in Brazil (May et al, 2002) or from a reforestation fund in Indonesia (Mumbunan, 2011), see their roles as part of a larger effort for collective purposes.

The intermediary directly influences what rules are in place, which rationality sustains them and, thus, on what grounds users and providers of ecosystem services relate with each other.

2.1 What makes an intermediary in PES?

Generally speaking, the purpose of intermediaries is to bring people with divergent backgrounds and interests together to engage in a mutually beneficial PES arrangement. In more economic terms, intermediaries ensure contract enforcement and reduce transaction costs, or more broadly, coordination costs (Vatn, 2009). Often, they are the ones who actually create the payment scheme, e.g. by specifying the linkage between a specific land use (change) and the increase in ecosystem service generated thereby.

We define intermediaries as those who coordinate and predominantly assume the following PES related tasks:

• PES preparation

•

: feasibility assessment and baseline setting, communication, trust and capacity building;

PES contracting

•

: sorting of legal issues, contract design and facilitation of negotiations;

PES implementation

In some cases, donors/buyers and sellers set up their specific intermediary structure; in others, they have been established a priori by governments. This comprehensive definition of ‘inte-rmediary’ emphasizes that people/organisations and not merely regulations/blueprints intervene in various stages to enable the transactions between buyers and sellers of ecosystem services.

: monitoring, verification and reporting, sanctioning of breaches of contract, collection and distribution of payments, and programme adaptation.

2.2 The importance of intermediaries in PES

In theory, PES holds the promise of efficient resource allocation and of internalising environmental externalities (Ferraro and Simpson, 2002; Wunder, 2007). In practice, PES schemes face at least two challenges: First, concerns have been raised about the crowding out effects that PES may have on other conservation motives based on social identity and collective action institutions (Clements et al., 2010; Pattanayak et al., 2010). Second, conservation biologists are concerned that the ecosystem services perspective, which sustains PES, does not adequately capture the complexity of biodiversity and is therefore unsuitable

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for biodiversity conservation (Redford and Adams 2009, Skroch and López-Hoffman 2010, Adams and Redford 2010).

Even a sophisticated standardized PES contract and well-intentioned procedural recommend-ations cannot sort these issues. PES, as a concept, builds on access to precise numbers and associated forecasting power, on clarity in motives and on transparent and fair negotiations.

Yet, in the real world this is not a given. Buyers and sellers have a range of interests in the ecosystem as well as in the PES arrangement itself. For example, strategic concerns such as building up collective action, affirmation of land rights, or strengthening ties with donors are part of the package that motivate sellers to get involved. Such issues go beyond a narrow cost-benefit analysis which often guides PES design and outreach (van Noordwijk and Leimona 2010).

Against this backdrop, the influence of intermediares in shaping and implementing a PES scheme in a specific setting are determinant for PES results. Depending on context, inter-mediaries shape PES regimes in various ways: They identify potential matches of buyers and sellers or identify potential ‘programme participants’. They mediate between often highly different knowledges, worldviews, interests and between the powers of buyers and sellers.

They create/constitute and run the mechanism that facilitates the transactions between buyers and sellers. They thereby shape the ecological effectiveness, the fairness (social impact) and the efficiency (costs) involved in a PES scheme. Therefore, the intermediary’s capacities, motives and organizational structure are strong determinants of the quality of the PES scheme in these terms.

2.3 Questions of enquiry for examining three PES cases

We will in the following examine the intermediaries in three PES cases, focussing on organisational structure, accountability, costs and position of intermediaries in their respective scheme. We do not claim to give a representative picture of institutional options. The purpose is rather to explore a range of intermediaries and with them the institutional landscape of PES, in order to make the case for more in-depth research into the governance of implementing PES (rather than e.g. into more sophisticated PES contract design). The case material is drawn from literature, personal experience, and exchange with key informants.

The following questions guide the enquiry:

1. What is the organisational structure of the intermediary?

2. What is the mandate of the intermediary and to whom is he accountable to?

3. What interests does the intermediary associate with running the PES scheme?

4. How is the intermediary financed?

5. How does the intermediary pursue PES preparation, contracting and implementation?

6. How does the intermediary address different worldviews, interests and powers?

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