This document summarizes a literature review on market-based instruments (MBIs) for ecosystem services. It finds that there is confusion around the definition of MBIs, with over 50 different names used across 104 scientific articles. The articles covered a wide range of MBI typologies, justifications, analytical approaches, evaluation criteria, and assessments. Specifically, the distribution of MBIs discussed in the literature included direct markets (30%), tradable permits (25%), and other undefined instruments (25%). The review concludes that generalizations are difficult due to the great diversity in how MBIs are defined and studied.

1. Market-based instruments for ES:
A rough guide to the literature jungle
PESMIX Workshop, Montpellier 11-13 June
Romain Pirard & Renaud Lapeyre

2. Background and Rationale
Confusion around MBIs is a problem:
• Delayed decisions & actions in
international arenas
• Good communication as requirement for
policies
• Confusion promoted to make older
instruments more pallatable?

3. Background and Rationale
Preliminary review shows MBIs as catchall for
all pricing instruments, hence we asked:
« How are MBIs for ES defined, reflected and
assessed in the scientific literature? »

4. Methods

5. • Use existing typology of MBIs as
framework to identify patterns
• Representative sample of scientific
articles

6. A typology of MBIs:
1. Direct markets
2. Tradable permits
3. Reverse auctions
4. Coasean-type
agreements
5. Regulatory price changes
6. Voluntary price signals

7. 1. Direct markets
2. Tradable permits
3. Reverse auctions
4. Coasean-type
agreements
5. Regulatory price changes
6. Voluntary price signals
A typology of MBIs:

8. 1. Direct markets
2. Tradable permits
3. Reverse auctions
4. Coasean-type
agreements
5. Regulatory price changes
6. Voluntary price signals
A typology of MBIs:

9. 1. Direct markets
2. Tradable permits
3. Reverse auctions
4. Coasean-type
agreements
5. Regulatory price changes
6. Voluntary price signals
A typology of MBIs:

10. 1. Direct markets
2. Tradable permits
3. Reverse auctions
4. Coasean-type
agreements
5. Regulatory price
changes
6. Voluntary price signals
A typology of MBIs:

11. 1. Direct markets
2. Tradable permits
3. Reverse auctions
4. Coasean-type
agreements
5. Regulatory price changes
6. Voluntary price
signals
A typology of MBIs:

12. Sampling the scientific literature
• WoS with relatively narrow scope
• Keywords: ‘market-based’ (topic) OR
‘market’ (title)
AND (‘ecos services’ OR ‘envir services’
OR ‘biodiv’)
• 104 relevant articles (out of 146 initially
hit)

13. Results

14. Direct Markets Coasean-type Agreements Undefined
0%
5%
10%
15%
20%
25%
30%
Distribution of MBIs in the categories:

15. Provision of economic incentives Undefined
0%
10%
20%
30%
40%
50%
60%
55%
28%
13%
25%
Justifications provided for MBIs:

16. Wide range of terms and limited clarifications:
25% of articles cite MBIs as a general and
undefined instrument
50 different names to designate MBI (many
names for each instrument)

17. Broad range of analytical approaches:
Local case-study (ex-post) Advocacy
0%
10%
20%
30%
40%
50%

18. Broad range of evaluation criteria:
Efficiency
Environmental effectiveness
Equity
Feasibility
Food security
Freedom of choice
Legitimacy
Participation
Pro-poor
Welfare
Governance
Development
0% 10% 20% 30% 40% 50% 60%

19. Positive, negative and neutral assessments
in similar proportions…
BUT WHAT DOES IT
MEAN?
[Depends on evaluation criteria, analytical
approaches…]

20. Conclusive remarks

21. Generalizations are pointless because of great
diversity
Mutually-exclusive categories are a challenge
A minima crucial distinctions between funding /
incentives / allocation mechanisms
Market governance versus bilateral governance?

22. Direct Markets Reverse AuctionsRegulatory Price Changes Undefined
0%
5%
10%
15%
20%
25%
30%
M
arket governance
(frequent com
m
odity
exchanges)

23. Direct Markets Reverse AuctionsRegulatory Price Changes Undefined
0%
5%
10%
15%
20%
25%
30%
Bilateral
governance
(paym
ents,
incentives)

24. Are PES a specific case?
Direct Markets Coasean-type Agreements Undefined
0%
10%
20%
30%
40%

25. “[experience] shows how the actual use of these tools
tends to depart from the role which economists have
conceived for them”
Hahn, R.W. (2000)

26. Further reading
Pirard R., de Buren, and R. Lapeyre, 2014, Do PES improve
governance of forest restoration?, Forests, 5 (3), pp. 404-24.
Lapeyre, R. and R. Pirard, 2013, Payments for environmental services
and market-based instruments: next of kin or false friends? IDDRI
Working Paper N°14/13, Institute for Sustainable development and
International Relations (IDDRI), Paris.
Pirard, R., 2012, Payments for Environmental Services (PES) in the
public policy landscape: “Mandatory” spices in the Indonesian recipe,
Forest Policy and Economics, 18, pp. 23-29.
Pirard, R., 2012, Market-based instruments for biodiversity and
ecosystem services: A lexicon, Environmental Science & Policy, 19-
20, pp. 59-68.
Pirard, R., Billé, R. and T. Sembrés, 2010, Upscaling Payments for
Environmental Services (PES): Critical Issues, Tropical Conservation
Science, 3(3), pp. 249-61.