Dear Thomas,

This research question is very interesting and I have conducted few research on influence of  of institutional context on wealth creating potential on entrepreneurship. However, your question is more interesting since it may investigate formation of natural institutions which may reduce transaction cost.  then the  payment system should be based upon the degree of enhancing for these natural institutions.

to explain further, put my argument in this way.  consider the problem of removing garbage in the ecosystem. Surface water flow may remove these debris to small waterways and then to major rivers. If there are structures of capture these debris before get into waters, then such structures could be regarded as an enhancing activities which would deserve a payment. 

Then the cost uncured in purifying water and removing debris has to be estimated to evaluate the value of reward for ecosystem service.

Upananda (Sr Lanka)

Dear Thomas,

Your question is more tilted towards resource economics than entrepreneurship which employes North's (1990, 1991) transaction cost argument.  Accordingly North argues that institutions (formal or informal) are formed to reduce transaction cost and used recent history of modern Europe to demonstrate institutions established to reduce uncertainty and transaction cost.

For your problem, transaction cost may incurred to reestablish  ecosystem which was disturbed human actions. Then it is important to understand profit gain, (e.g.,)   de-establishing environment (e.g., destroying forests and reducing absorption capacity of soil) and the cost of reestablishing irrigation and water supply systems.

I believe that  North's transaction cost argument works reversely  when applying to ecosystem services.

Upananda

Dear Thomas,

I'm an IS researcher and will answer your question from that perspective. Last year I was recruited as a consultant to establish voluntary inter-organizational IT governance to one of the five social welfare and healthcare areas of my country - as they are now called. Municipalities, hospitals, healthcare districts, health centers etc in the area form an ecosystem of more than one hundred organizations. The established IT governance arrangement is now implemented in that area and its implementation has or is about to start in the other four areas. The constitution of my country guarantees taxation right to municipalities and hence also independence in organizing services concerning issues that fall into their responsibility. That is why the arrangement had to be voluntary. From participants' perspective the motives for establishing this ecosystem were to bring benefits to all participants of the ecosystem. In concrete terms this means reduction of transaction costs by 1) doing IT hardware, software, service etc purchases jointly; 2) negotiating with the vendors of IT services in a coordinated way to influence further development, maintenance and their costs; 3) by pooling and sharing scarce and expensive IT resources to have better access to them and to save costs; and 4) by participating to national level social welfare and healthcare (IT) services development in a more efficient and effective way.

After the consultancy was completed I have done research on the case. I asked permission to do this prior the consultancy assignment was agreed. So far published a few articles in conferences. I applied transaction cost economics theory during the assignment - because I knew it from my earlier IT outsourcing studies - and have used it also in the articles. In my mind transaction cost economics fits well to research on the formation and other phases in the life of ecosystems. I also do research on the topic you asked about  

Dear Thomas,

I wish  raise following question in response to your question.

1. Why we need ecosystem service?

2. Who made ecosystem service mandatory?

Answer may be development effort by individuals/government. When development efforts are made only to gain economic profits, degradation of ecosystem is inevitable.

When ecosystem is degraded (perhaps beyond recovery), again same government and individual demand for reestablishing ecosystem.  Then there cannot be reward system since degradation also caused by same individuals and governments. When the ecosystem is degraded beyond recovery (you cannot give lives to dead flora and fauna which perished for ever) , there cannot be a reward system. Even if  such system is established it may not sustain since   reward system itself  may become another   mechanism to destroy ecosystem.

 Upananda

Dear Thomas,

Thanks for your interest in ecosystem Management which is necessity to sustain our lives.

However, managing ecosystems in temperate zones are entirely different from those on tropical zones. tropical ecosystems are complicate due to high diversity and rapid grwoth of flora and fauna.

Upananda

Dear Tomi and Upananda,

Thanks for taking time to respond to my question. I agree with your arguments. Reward schemes for ecosystem services are context specific and not silver bullets for solving problems resulting from interactions between people and ecosystems. Conceptually, I am talking about rewards, payments or rewards as promoted by Rewarding the Uplans Poor for the Environmental Services they provide (RUPES), Pro-poor Rewards for Environmental Services in Africa(PRESA) or other schemes like the case of Catskills watershed providing water for New York City. I also agree with Tomi's practical example. The cost you accumulate from the design of the mechanism to the time you have flow of benefits from service beneficiaries to providers is often huge and often the question is how to we reduce the costs?