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REVIEW PAPER

Paying for International Environmental Public Goods

Rodrigo Arriagada, Charles Perrings

Received: 21 December 2010 / Revised: 20 April 2011 / Accepted: 29 April 2011 / Published online: 2 June 2011

Abstract Supply of international environmental public goods must meet certain conditions to be socially efficient, and several reasons explain why they are currently under-

supplied. Diagnosis of the public goods failure associated

with particular ecosystem services is critical to the devel- opment of the appropriate international response. There are

two categories of international environmental public goods

that are most likely to be undersupplied. One has an additive supply technology and the other has a weakest link

supply technology. The degree to which the collective response should be targeted depends on the importance of

supply from any one country. In principle, the solution for

the undersupply lies in payments designed to compensate local providers for the additional costs they incur in

meeting global demand. Targeted support may take the

form of direct investment in supply (the Global Environ- ment Facility model) or of payments for the benefits of

supply (the Payments for Ecosystem Services model).

Keywords International environmental public goods ! Ecosystem services ! Payments for ecosystem services ! Global environmental public

INTRODUCTION

How can we best secure the provision of international environmental public goods (IEPGs)—public goods offer-

ing benefits that span multiple national jurisdictions? It is

well understood that markets undersupply public goods, and there is a wealth of evidence that many environmental

public goods have been systematically undersupplied over

a long period of time (Millennium Ecosystem Assessment 2005). If environmental public goods occur at the scale of

the nation state or below, the failure of markets to supply

public goods may be offset by the actions of local or

national governments. There exist many national agencies with responsibilities for the provision of environmental

public goods such as habitat for rare and endangered spe-

cies, clean water, environmental health protection, and so on. There also exist many offset or mitigation systems for

securing private provision of public goods at a national

level (Madsen et al. 2010). At the international level, where there is no supranational authority to take responsibility,

the failure of markets to deliver environmental public goods is more difficult to offset. Depending upon the

magnitude and distribution of the payoffs to public good

provision, individual countries will have a stronger or weaker incentive to commit resources to their provision.

Doing more than that depends upon agreement between

nation states (Kaul et al. 2003a; Barrett 2007). Many IEPGs are strictly global. Examples include the

conservation of the genetic diversity on which all future

evolution depends, the mitigation of climate change, the control of emerging infectious diseases, and the manage-

ment of sea areas beyond national jurisdiction. Many more

are regional, such as the control of acid rain, the manage- ment of multi-country river basins, and the protection of

international watersheds (Touza and Perrings 2011). Like

all public goods, IEPGs exhibit both consumption indi- visibilities and non-excludability. Non-excludability means

that once the good is provided, none can be excluded from

enjoying the benefits it confers. Indivisible consumption occurs when one country’s enjoyment of the benefits does

not diminish the amount available for others. Public goods

are said to be ‘pure’ when they are both non-exclusive and non-rival (indivisible) in consumption. They are said to be

impure if they are either partially excludable or partially

rival—the most common form of which are local public goods, particularly the local common pool resources

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analyzed by Ostrom (1990). In most cases, it is not possible

for any single state to provide such goods on its own. International public good supply depends on either inter-

national coordination or international cooperation (Anand

2004). This article focuses on IEPGs whose benefits extend to

people in multiple countries. Such IEPGs frequently also

deliver benefits across multiple generations (Kaul et al. 1999), but we do not address this aspect of the problem. In

practice, the beneficiaries of international public goods include national populations and their representatives,

nation states, transnational corporations and non-govern-

mental organizations, as well as a newly emerging set of institutions. Globalization has altered the way that mem-

bers of civil society organize themselves across national

boundaries. The information revolution has also stimulated new forms of social participation. New networks, fre-

quently built around environmental websites, enable the

exchange of ideas and implementation techniques. These new relationships and interactions have created a ‘global

environmental public’, interested in asserting new rights

and responsibilities to the resources of the planet. Its concerns span both the ethical responsibilities of individ-

uals, organizations, countries and corporations, and the

alternative forms of governance of the biosphere. Following the Millennium Ecosystem Assessment, we

suppose that the benefits people obtain from biosphere

depend on a set of ecosystem services comprising:

• Provisioning services: products people obtain from ecosystems, such as food, fuel, fiber, fresh water, and genetic resources.

• Cultural services: nonmaterial benefits people obtain from ecosystems through spiritual enrichment, cogni- tive development, reflection, recreation, and aesthetic

experiences.

• Regulating services: benefits people obtain from the regulation of ecosystem processes, including air quality

maintenance, climate regulation, erosion control, reg-

ulation of floods and droughts, regulation of human diseases, and water purification.

• Supporting services: those that are necessary for the production of all other ecosystem services, such as primary production, production of oxygen, and soil

formation.

These services affect human wellbeing in many ways:

through their role in the production of consumption goods,

their support of human health and security, or the satis- faction of peoples’ cultural and spiritual needs. A number

of these services have the characteristics of IEPGs, the

most important of which involve the regulating and sup- porting services. Figure 1 indicates the relation between

categories of ecosystem services and components of

wellbeing identified by the Millennium Ecosystem

Assessment. Of these, only the provisioning services con- sistently generate benefits that are both divisible (rival) and

exclusive. The other services yield benefits that are gen-

erally indivisible and non-exclusive. We focus on the group of ecosystem services that are both public and interna-

tional. These are services that: (i) cover more than one

group of countries; (ii) benefit not only a broad spectrum of countries but also a broad spectrum of the global popula-

tion; (iii) meet the needs of both present and future gen- erations (Kaul et al. 1999; Anand 2004). International

public goods generated in any one county must therefore

generate spillover effects beyond a nation’s boundary (Morrissey et al. 2002).

IEPGs can further be classified according to their

‘technology of supply’ (Sandler 2004). The standard treatment of public goods focuses on demand (Hirshleifer

1983). However, understanding the technology of supply of

IEPGs is critical to the development of appropriate incen- tives. Three common examples of public good supply

technologies are ‘additive’, ‘best shot’, and ‘weakest link’

technologies. As the name implies, in the additive case, the socially available amount Y of a public good is nothing but the ‘simple sum’ of the separate amounts, yi, produced by each of m participating countries, the i = 1,…, m. In the case of simple sum public goods, such as carbon seques-

tration, each unit of carbon sequestered has the same value

no matter where it occurs. In the case of weighted sum public goods, such as habitat protection, the contribution of

each hectare protected depends on its characteristics

(Sandler 2004). For ‘best shot’ public goods, the benefit to all countries is determined by the most effective provider.

For example, the Centers for Disease Control and Pre-

vention are funded by the U.S.A., but provide information on infectious diseases to all countries. For ‘weakest link’

public goods, the benefits to all countries are limited to the

benefits offered by the least effective provider. The best example of this is the control of infectious diseases. So for

HIV and tuberculosis, the level of protection available to

all countries is only as good as the control of the disease exercised in the poorest, most densely populated, and least

well-coordinated country (Perrings et al. 2002).

Social composition functions

Y " X

i yi Summation

Y " min i

yiY " min i

yi Weakest-link

Y " max i

yi Best-shot

Of all the Millennium Ecosystem Assessment ecosystem services, the regulating services are most often supplied as

IEPGs. Examples include disease control, which is

frequently supplied as a weakest or weaker link public

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good, climate regulation through, e.g., carbon sequestration,

which is supplied as an additive pure public good, or

watershed protection which is generally an additive but impure public good (Holzinger 2001; Dombrowsky 2007;

Touza and Perrings 2011). Many international public goods

are also jointly produced with local public goods. Biodiversity in tropical forests, for example, yields a set of

private benefits in the form of timber and other products including medicinal plants, hunting, fishing, recreation, and

tourism. At the same time, tropical forests are a source of

carbon sequestration, genetic information, hydrological and microclimatic regulation—commonly described as co-

benefits (Perrings and Gadgil 2003).

An important feature of IEPG is that their spatial extent depends partly on the natural hydrological and atmospheric

flows, and partly on the social linkages between coun-

tries—the flow of goods, people, and information. The global reach of carbon sequestration is a property of the

general circulation system, but the global reach of disease

regulation is a property of the global trade and air trans- portation systems. In fact, the closer integration of the

world economic system has rapidly increased the number

of environmental public goods that are global in reach (Kaul et al. 2003b):

• New technologies increasingly enhance human mobil- ity as well as the movement of goods, services, and

information around the world (e.g., case of transmission

of human diseases and air pollution as international environmental public bads).

• Economic and political openness have provided further impetuses to cross borders and transnational activities

(e.g., case of transmission of human diseases and air pollution as international environmental public bads).

• Systematic risks have increased (e.g., case of climate change as an international environmental public bad).

• International regimes are becoming more influential, often formulated by small groups of powerful nations

yet often claiming universal applicability (e.g., case of bio-prospecting contracts to find cure for cancer and

other human diseases).

The central problem addressed in this article is how to secure environmental public goods that (a) are provided at

particular locations but offer benefits over a wider area, and

(b) generate local benefits that are below the local cost of supply. These are the IEPGs that are most likely to be

undersupplied. This article is organized in four sections.

The following section reviews the fundamental problem with IEPGs—the incentive that each country has to free

ride on the efforts of others. A third section then considers

the options for addressing the problem. This reviews the applicability of currently popular instruments, such as

payments for ecosystem services, in terms of the charac-

teristics of the public good concerned. A final section draws out the implications for national and international

environmental policy.

WHY ARE INTERNATIONAL ENVIRONMENTAL PUBLIC GOODS UNDERPROVIDED?

International environmental public goods generate benefits that spill over national borders, so that the benefits (or

Provisioning (food, fuel , fiber, fresh water, and

genetic resources)

ECOSYSTEM SERVICES

Cultural (spiritual enrichment, cognitive

development, reflection, recreation, and aesthetic

experiences)

Regulating (air quality maintenance, climate

regulation, erosion control, regulation of floods and droughts, regulation of human diseases, and

water purification)

Security • Personal safety • Secure resource access • Security from disasters

Basic material for good life • Adequate livelihoods • Sufficient nutritious food • Shelter • Access to goods

Health • Strength • Feeling well • Access to clean air and water

Good social relations • Social cohesion • Mutual respect • Ability to help others

CONSTITUENTS OF WELL-BEING

ARROW’S COLOR Potential for mediation by socioeconomic factors

Low Medium High

Supporting (nutrient

cycling, soil formation,

and primary production)

Fig. 1 Linkages between ecosystem services and human well-being (arrow’s width intensity of linkages between ecosystem services and human well-being) (adapted from Millennium Ecosystem Assessment, 2003)

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costs) of those goods extend beyond the country of origin.

If the marginal local benefits of public good provision are less than the marginal local costs, there will be no incentive

to provide the public good at all. If the marginal local

benefits of public good provision exceed the marginal local costs of provision, but benefits also accrue to other coun-

tries, there will be an incentive to produce the public good,

but unless the country is a ‘best-shot provider’ it will not be at a level that would satisfy international demand (Ferroni

and Mody 2002; Kanbur 2003, 2004). We first of all review the problem and then consider the options for addressing it.

We have elsewhere considered the cases where the national

incentive to produce IEPGs is sufficient to meet global demand (Touza and Perrings 2011). In this article, we

address the case where independent local action is not

sufficient to secure efficient global supply. Consider the conservation of endangered species. Can

we rely on the national action to produce the efficient

amount of an IEPG such as the protection of iconic spe- cies? The key to understanding this lies in the difference

between a pure public good and a private good. For a

private good, everyone pays the same price, but is free to consume as much or as little as they want. Consumers

adjust the quantity they consume given the market price.

For a pure public good everyone consumes the same amount of the ‘‘good’’ but is willing to pay a different price

for it. Consumers adjust the amount they are willing to pay

for the public good given the quantity supplied (Batina and Ihori 2005). In general, private provision of public goods

will be below the socially optimal level. Efficiency requires

that marginal benefit equals marginal cost. In the case of conservation of endangered species (or any other public

good), the relevant measure of marginal benefits is social

marginal benefit—the sum of all countries marginal bene-

fits. We illustrate the problem in Fig. 2, in which local and global benefit curves for species conservation in a partic-

ular country, i, are presented. Global benefits are repre- sented by the vertical sum of the benefit curves of country i, and all other countries.

The level of conservation in country i that maximizes local net benefits is indicated by yi, while the level of conservation that maximizes global benefits is indicated by

yi#. yi is given by the intersection of local supply and local benefit curves, and yi# by the intersection of local supply and the vertical sum of local benefits for all countries.

Since the marginal cost of provision at yi# is greater than country i would be willing to accept on its own, socially optimal provision of the public good depends on the

existence of a mechanism to cover the ‘incremental’ cost of socially optimal provision to country i.

Biodiversity conservation, like many other IEPGs, is an

impure global public good. If there are many potential providers, each generates local benefits from its conser-

vation effort, but also benefits from the conservation

actions of others. Following, Perrings and Gadgil (2003), we characterize the problem for the individual country as

follows. Vi denotes welfare of the ith country, assumed to depend on consumption of a vector of market goods, xi, and global biodiversity conservation, denoted C = C(y1, y2,…,ym), then the problem it faces is of the general form:

MaxxiyiV i xi; yi; C y1; . . .; ym

! "! "

In other words, it derives a direct benefit from its own

conservation efforts, yi, but also benefits from the global conservation effort to which it has contributed, C. If the cost of conservation effort in terms of the cost of market

Quantity of local conservation effort

Costs and benefits of local conservation effort

Global benefits Costs of local conservation effort

yi yi*

‘Incremental cost’ = benefits to global interests in excess of costs warranted by local interest of country i

Benefits to all other countries

Benefits to country i

Fig. 2 Efficient provision of conservation effort

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goods is p(yi), and if the income available to country i is Ii, this will be subject to the constraint that

Ii " xi $ p yi ! "

yi

In the absence of cooperation, and noting that

Viyi " oV i=oyi; Vixi " oV

i=oxi and Cyi " oC=oyi, wellbeing of the ith country will be maximized where the local level of conservation satisfies:

ViYi Vi xi " pyi %

Vic Vi xi Cyi

If global wellbeing is the sum of the welfare of all countries, V "

P j"1 V

j, then global wellbeing will be

maximized where

ViYi Vi xi " pyi %

X

j"1

V jc Vi xi Cyi

The extra terms in the summation term on the right hand side capture the conservation benefits that the ith country confers on all other countries. These benefits will be

neglected by the ith country unless there is a mechanism to convert them into a direct incentive.

The failure of markets to signal the global benefit of

such public goods accordingly results in under-invest- ment in their local provision. The benefits of protection,

management and establishment of forests provide a good

example. Apart from the loss of the valuable environ- mental services (e.g., protection of genetic resources, air

quality maintenance, climate regulation and regulation of human diseases), forest degradation frequently translates

into a loss of timber and non-timber forest products

important to local livelihoods (Landell-Mills & Porras 2002).

Currently, there are few measures of the underprovi-

sion of public goods. The United Nations Development Programme (UNDP) has opted instead for measures of

‘‘adequate’’ provision that differ from one public good to

another. Such measures can, for example, correspond to the complete elimination of global public bads. More

generally, they are measures of what is considered pos-

sible, given the current state of technology (e.g., to control—rather than eradicate—the problem of HIV/

AIDS) and what is ‘‘fair’’ (e.g., what would emerge if all

concerned stakeholders had an effective voice in the decision-making process) (ODS-UNC 2002). The crite-

rion of adequacy is not meant to indicate optimality—the

balancing of marginal costs with the sum of people’s marginal willingness to pay for a particular public good

(see Samuelson 1954; Cornes and Sandler 1996). Rather,

it is meant to establish a relatively simple, yet reliable, yardstick for measuring the present provision of a certain

good against a technical notion of adequacy.

In the case of the global public good ‘communicable

disease control’, for example, it has been possible, given the biological characteristics of the infectious agent and

available technologies, to completely eradicate certain

diseases. In these cases, the criterion for adequate provision is defined as complete eradication, or zero incidences in the

‘‘wild.’’ The determination of ‘‘adequate provision’’ is

based solely on technical considerations, without reference to costs, benefits or existing preferences and willingness to

pay. Therefore, there may be cases where adequate provi- sion may not be economically feasible. It is important to

assess the net benefits/costs of inaction against the net

benefits/costs of corrective action to determine, at least approximately, whether meeting the technological

requirements for adequate provision is economically

desirable (UNDP 2002).

POLICY OPTION: PAYMENTS FOR ECOSYSTEM SERVICES

In principle, the solution to IEPG problems of this form lies in payments designed to compensate local providers for the

additional costs they incur in meeting global demand.

Indeed, that is the basis on which the Global Environment Facility (GEF) was founded. The GEF unites 182 member

governments—in partnership with international institu-

tions, nongovernmental organizations, and the private sector—to address global environmental issues. An inde-

pendent financial organization, the GEF provides grants to

developing countries and countries with economies in transition for projects related to biodiversity, climate

change, international waters, land degradation, the ozone

layer, and persistent organic pollutants. These projects benefit the global environment, linking local, national, and

global environmental challenges, and promoting sustain-

able livelihoods. The concept of incremental cost, which notionally determines the payments made by the GEF, is

related to the difference between the cost a country would

be prepared to bear in the provision of an environmental public good (the cost that would be warranted in terms of

the national benefits generated by the public good) and the

cost of meeting global demand for the same public good (Pearce 2003, 2005). It is a national payment for an envi-

ronmental service that is an IEPG.

Systems of Payments for Ecosystem Services (PES) have become popular instruments for dealing with IEPGs,

in part because they appear to satisfy the incremental cost

principle (Ferraro and Simpson 2002; Goldstein et al. 2006; Wunder 2007; Ferraro and Kiss 2007; Pagiola 2008; Engel

et al. 2008; Wunder et al. 2008). They are not, however,

appropriate mechanisms in all cases. International PES schemes are appropriate where non-marketed ecosystem

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services are privately supplied in one country, but offer

benefits that are public and accrue elsewhere. To illustrate the potential pluses and minuses of PES, we

consider a particular problem: the impact of local defor-

estation on the provision of a range of IEPGs including climate regulation (through carbon sequestration), protec-

tion of genetic diversity, and watershed protection in

addition to timber and non-timber forest products. The Economics of Ecosystems and Biodiversity (TEEB) study

is a major international initiative to draw attention to the global economic benefits of biodiversity, to highlight the

growing costs of biodiversity loss and ecosystem degra-

dation, and to draw together expertise from the fields of science, economics and policy to enable practical actions

moving forward. The current assessment of TEEB on PES

has used existing studies to estimate the mean value of both the macroclimatic regulation offered by terrestrial carbon

sequestration, and the change in provisioning and cultural

services offered by forest systems. Its findings are pre- liminary but telling. TEEB (TEEB 2009; Kumar 2010)

suggests that the mean values of forest ecosystem services,

in US$/ha/year, are dominated by regulatory functions: specifically regulation of climate ($1965), water flows

($1360), and soil erosion ($694). The mean value of all

provisioning services combined—timber and non-timber forest products, food, genetic information, pharmaceuti-

cals—is $1313. This is less than the value of water flow

regulation alone. There are substantial off-site benefits to forest conservation that are not currently captured by forest

landowners and are difficult to incorporate on PES

schemes. Governments around the world have frequently imple-

mented forest protection policies in areas high in biodi-

versity, landscape beauty or critical for their watershed protection. However, as pressure mounts on governments

to curtail spending and cut budget deficits, their ability to

invest directly in the provision of public goods and services is compromised. Where public authorities have been

unable to tackle the public good problem, they have sear-

ched for ways to involve non-governmental actors. Efforts to transfer responsibility for forest environmental services

out of the public sector have relied on a combination of

regulation and market-based approaches (Landell-Mills and Porras 2002). Experience has shown that well-designed

market-based instruments can achieve environmental goals

at less cost than conventional ‘‘command and control’’ approaches, while creating positive incentives for continual

innovation and improvement (Stavins 2003). Examples of

such instruments in the forestry sector include stumpage value-based forest revenue systems, financial and material

incentives, long-term forestry concessions, trade liberal-

ization, forest certification and the promotion of markets for non-timber forest products.

The costs and benefits associated with many human

activities spill over jurisdictional boundaries, thereby generating externalities that are often reciprocal and

quantitatively significant (Cornes 2008). Therefore, IEPGs

supply depends on either international coordination or international cooperation. Among payment schemes to

internalize the external benefits of maintaining intact for-

ests, Reducing Emissions from Deforestation and Forest Degradation (REDD) is an effort to create a financial value

for the carbon stored in forests, offering incentives for developing countries to reduce emissions from forested

lands and invest in low-carbon paths to sustainable devel-

opment. REDD is an example of international coordination in delivery of ecosystem services. Its integration into

international market-based climate change policies poses a

number of challenges both to institutional design and to implementation. At present, for example, there are few

effective mechanisms for converting international pay-

ments to governments into incentives to on-the-ground forest communities (Myers 2008; Sikor et al. 2010).

Indeed, creating an effective multilevel system of pay-

ments is seen as the core issue in building REDD consid- ering that REDD goes beyond deforestation and forest

degradation, and includes the role of conservation, sus-

tainable management of forest and enhancement of forest carbon stocks (Anngelsen and Wertz-Kanounnikoff 2008).

It is predicted that financial flows for greenhouse gas

emission reductions from REDD could reach up to US$30 billion a year. This significant North–South flow of funds

could reward a meaningful reduction of carbon emissions

and could also support new, pro-poor development, help conserve biodiversity, and secure vital ecosystem services.

A second issue is the linkage between distinct ecosystem

services. The REDD scheme targets one important eco- system service: carbon sequestration. However, it has the

potential to secure other services as well. These services

potentially include both habitat provision for biodiversity conservation and watershed protection. Reaching interna-

tional agreement on an instrument to reduce emissions

from deforestation and forest degradation, while recog- nizing the co-benefits offered by conservation, and the

sustainable management of forested watershed would both

secure global carbon sequestration services, as well as help to maintain other valuable services provided by forests

(TEEB 2009). There is growing recognition that REDD

planning requires a broadened approach. A future REDD mechanism should incentivize emissions reduction from

reduced deforestation, enhanced carbon sequestration and

address a number of non-carbon services. Implementation of REDD also requires attention to the quality of forest

governance, conservation priorities, local rights and tenure

frameworks, and sub-national project potential (Phelps et al. 2010).

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IMPLICATIONS FOR INTERNATIONAL ENVIRONMENTAL POLICY

Globalization isoften associated withincreased privateness—

economic liberalization is associated with the growth of the number of goods and services allocated through markets,

international market integration, and enhanced private cross-

border economic activity such as trade, investment, transport, travel, migration and communication.However,globalization

is also about increased publicness—about people’s lives

becoming more interdependent. Events in one place of the globe often have worldwide repercussions. Moreover, a

growing volume of international policy principles, treaties,

norms, laws, and standards is defining common rules for an ever-wider range of activities (Kaul et al. 2003b).

Public goods are recognized as having benefits that

cannot easily be confined to a single ‘‘buyer’’ (or set of ‘‘buyers’’). Yet once they are provided, many can enjoy

them for free. A clean environment is an example. Without

a mechanism for collective action, these goods will gen- erally be underprovided. In fact, many crises dominating

the international policy agenda today reflect the under-

provision of global public goods. With globalization, externalities are increasingly borne by people in other

countries. Indeed, issues that have traditionally been

merely national are now global because of the greater interconnectedness of the planet.

Kaul et al. (2003b) suggest a rethinking of three notions underpinning the theory of public goods. First, properties

of non-rivalry in consumption and non-excludability of

current benefits do not automatically determine whether a good is public or private. Some goods may be either public

or private. Nevertheless, it is important to distinguish

between a good’s having the potential of being public (that is, its having non-rival and non-excludable properties) and

its being de facto public (non-exclusive and available for

all to consume). Second, public goods do not necessarily have to be provided by the state. Many other actors can,

and increasingly do, contribute to their provision. And

third, a growing number of public goods are no longer national in scope, having assumed cross-border dimen-

sions. Many have become global and require international

cooperation to be adequately provided. For the most part, the theoretical and empirical literature

in economics has focused on two polar models of public

goods provision: the provision of pure public goods that benefit all agents, and the provision of local public goods

that only benefit agents in one community (Bloch and

Zenginobuz 2007). We are concerned with cases where the members of one community enjoy positive spillovers from

the public goods provided by other communities. In the

context of global climate regulation, the REDD scheme will compensate tropical nations that succeed in reducing

carbon emissions from deforestation and forest degrada-

tion—source of nearly one fifth of global carbon emissions. Since forests offer a number of benefits aside from carbon,

however, the scheme could potentially benefits to com-

munities that would otherwise be unable to afford them (Stickler et al. 2009). If well designed and implemented,

PES schemes such as REDD have the potential to secure

provision of IEPGs that offer benefits at multiple scales, such as the protection of water supplies, local and regional

climate regulation, and habitat provision for the protection of biodiversity. The effectiveness of PES schemes depends

heavily on the conditionality of payments (Arriagada and

Perrings 2009), but the principles for their effective design and implementation are well understood.

To summarize, the implications of this paper for inter-

national environmental policy are the following:

1. Diagnosis of the public goods failure associated with

particular ecosystem services is critical to the devel-

opment of the appropriate international response. There are a number of cases where the incentive

structure is such that independent actions by nation

states will be ‘good enough’ to secure the public interest (Touza and Perrings 2011). Where the tech-

nology of supply is ‘best shot’ or where the local

benefits are high enough to lead to a level of supply that is close to the global optimum, then the indepen-

dent actions of nation states will be adequate. How-

ever, where local benefits lead to a level of local supply that leaves global demand unsatisfied, then

international coordination or cooperation in the deliv-

ery of ecosystem services will be required. We note that this largely depends on the nature and strength of

off-site effects. Local actions that generate significant

off-site benefits or costs are most likely to require international coordination or cooperation. Off-site

effects can reflect both natural (through hydrological

or atmospheric flows) and social (through trade and travel) transmission. Since social transmission of

effects is rapidly evolving, understanding social trans-

mission pathways is important to the diagnosis of the public goods failure.

2. There are two categories of IEPGs that are most likely

to be undersupplied. The first involves an additive supply technology, a high opportunity cost of supply

and transmission to a large number of other countries

through the general circulation system. Examples include mitigation of climate change, and management

of transboundary nutrient flows, currently addressed

through the UN Framework Convention on Climate Change and the Convention on Long Range Trans-

boundary Air Pollution. The second involves a weakest

link supply technology, and transmission to a large

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number of other countries through global trade,

transport and travel. Examples include the manage-

ment of infectious zoonotic diseases and the control of invasive pest species, currently addressed through the

International Health Regulations, the Sanitary and

Phytosanitary Agreement, and the Convention on Biological Diversity.

3. If there is a public goodfailure that demands international

coordination or cooperation, it is then important to determine the degree to which the collective response

should be targeted. In principle, action should be targeted

to reflect the weight attaching to the supply from any one country.So,at one extreme, international contributions to

an IEPG with an additive supply technology that is

unweighted (a simple sum), such as carbon sequestration by forest plantations, should not be targeted at all.

Whereas international contributions to a weakest link

international environmental public good, such as infec- tious disease control, should be targeted at the weakest

link. In practice, most ecosystem services are jointly

produced(come asa bundle),and involveanintermediate position. Particular countries are more important for the

provision of some services than others (e.g., high

biodiversity countries contribute more to the global gene pool than others) so most international contributions to

IEPGs should be targeted in some measure.

4. For IEPGs that are supplied in specific countries, support may take the form of direct investment in

supply (the Global Environment Facility model) or of

payments for the benefits of supply (the Payments for Ecosystem Services model). The fact that GEF is

under-resourced, and is only weakly targeted, suggests

that the second option may become the dominant mechanism for assuring local provision of IEPGs. We

have elsewhere discussed the conditions that need to

be satisfied for PES schemes to be effective (Arriagada and Perrings 2009). The most important of these is that

payments for ecosystem services should be conditional

on the supply of those services. Where PES schemes have both income transfer/poverty alleviation and

public good supply objectives, conditionality may be

lost altogether. It is important that the design of PES schemes fit the diagnosis of the public good problem,

and the technology of public good supply.

Acknowledgment The authors acknowledge support from the United Nations Environment Programme.

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AUTHOR BIOGRAPHIES

Rodrigo Arriagada (&) is a Assistant Professor in the Department of Agricultural Economics at the Pontificia Universidad Catolica de Chile. Dr. Arriagada is also an associated research fellow for Envi- ronment for Development (EfD) initiative in Central America and ecoSERVICES Group at Arizona State University. His fields of specialization are environmental economics, program evaluation econometrics, applied microeconomics and development economics. Dr. Arriagada’s current research interests focus on environmental economics and policy, the use of experimental and quasi-experi- mental program evaluation methods on conservation interventions, deforestation and land use, issues at the intersection of economic development and environmental protection. Address: Department of Agricultural Economics, Pontificia Univers- idad Católica de Chile, Avenida Vicuña Mackenna 4860 Macul, Santiago, Chile. e-mail: [email protected]

Charles Perrings is a Professor of Environmental Economics at Arizona State University (ASU). Previous appointments include Professor of Environmental Economics and Environmental Manage- ment at the University of York; Professor of Economics at the Uni- versity of California, Riverside; and Director of the Biodiversity Program of the Beijer Institute, Royal Swedish Academy of Sciences, Stockholm, where he is a Fellow. At ASU, he directs (with Ann Kinzig) the ecoSERVICES Group within the College of Liberal Arts and Sciences. The Group studies the causes and consequences of change in ecosystem services—the benefits that people derive from the biophysical environment. It analyses biodiversity change in terms of its impacts on the things that people care about. Address: ecoSERVICES Group, School of Life Sciences, Arizona State University, Box 874501, Tempe, AZ 85287-4501, USA. e-mail: [email protected]

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