The Role of Federal Policy in Establishing Ecosystem Service Markets

Abstract

"The public good nature of ecosystem services has historically frustrated their inclusion within a traditional free-market framework. The inherent attributes of public goods—joint consumption and the inability to exclude users—vitiate incentives for their efficient provision and production through conventional markets. Government intervention typically has been necessary to correct this market failure with respect to other traditional public goods, such as law enforcement, national defense, and transportation infrastructure. Correspondingly, government intervention will be requisite in correcting market failures to supply ecosystem service public goods, such as climate regulation. The mechanisms by which government can correct these market failures are contingent upon the nature of the public good itself, and range from command-and-control approaches to market incentives. Where private good attributes are present, such as excludability and non-joint consumption, quasi-market incentives may be employed in concert with command-and-control strategies to supply a public good."