Calibrating payment for ecosystem services: a process-oriented policy design approach

Abstract

Recent empirical research in policy design has shown the relevance of micro-level components, particularly specification and calibration, in shaping policy outcomes. Additionally, research highlights the importance that understanding the mechanisms underlying the policy process has for effective policy design. Yet, a gap persists in how to effectively calibrate and specify policies for specific cases, with a theoretical grounding and guidance for practitioners. This paper addresses this need by applying a process theory of change to delineate the key episodes that constitute the mechanisms of a plausible pathway for an effective Program for Ecosystem Services (PES), an incentives-based instrument focused on conserving forests producing carbon sequestration, biodiversity protection, and water infiltration, among other services. Specifically, the paper uses the well-documented Mexican PES to illustrate how to derive the mechanisms and use them for calibration and specification. The paper provides valuable theoretical insights drawn from the case study, contributing to the field of micro-policy design with a mechanistic approach.

Keywords:

• Policy design
• mechanistic approach
• process theory of change
• payment for ecosystem services
• Mexico

1. Introduction

Recent developments in the policy design literature point out that the micro-dimension of design has often been overlooked, with the specification of targets and calibration of programs treated as by-products of more significant macro- and meso- levels (Cashore and Howlett 2007; Howlett 2014; Capano and Howlett 2021; Mukherjee and Bali 2019). This oversight has been a limitation for the literature, as the micro-design has been shown to have important effects on effectiveness and other criteria (Grohmann and Feindt 2023; Capano and Toth 2023; Howlett, Ramesh, and Capano 2022). Additionally, frameworks calling for attention to the mechanistic logic of the policy process have been developed (Capano and Howlett 2021), alongside new methods for identifying plausible mechanisms (Beach and Pedersen 2019), understood as sets of agents and actions structured to generate a sequence of changes from an initial state to a final one. Consequently, policy instruments, as activators of mechanisms, enhance our understanding of the unfolding process, thereby improving the policy design process (Capano and Howlett 2021).

Despite the value of recent developments, further advancement in the policy design literature requires theoretical development on how to perform specification and calibration, aiming at effective policies, able to achieve their intended goals but also provide clear guidance for practitioners involved in navigating the policy process (Mukherjee and Bali 2019; Bali, Capano, and Ramesh 2019; Peters et al. 2018).

This paper aims to contribute to the theoretically based development of policy design guidelines by illustrating how to calibrate a Payment for Ecosystem Services (PES) program. It clearly identifies the essential mechanisms that forge a realistic path to achieving policy objectives. This is achieved by leveraging the theoretical conceptualization on the mechanistic approach to policy design described by Capano and Howlett (2021), operationalizing mechanisms through a process theory of change approach as recommended by Camacho Garland and Beach (2023), and enriching the mechanism with insights from the well-documented case of the Mexican federal government’s PES program (Muñoz-Piña et al. 2008). This case, characterized by a clear though stylized theory of change based on microeconomic theory, has been extensively described, undergone numerous design changes, and served as a template for other PES cases in the Global South, making it an illustrative example for demonstrating the proposed approach.

In a nutshell, PES is an incentives-based policy instrument aiming at preserving forest lands valuable for their production of specific ecosystem services (or bundles of services): carbon sequestration, hydrological regulation, disaster mitigation, biodiversity preservation, among others (Bishop and Pagiola 2002; Wunder et al. 2018). The user of ecosystem services—or the government on behalf of the users—offers a voluntary exchange, consisting of a monetary payment when the agreed conditions are fulfilled, typically involving the conservation of valuable forest land and, in many cases, specific conservation actions.

In contrast to other cases where the literature has been rich in macro or meso-level analyses but barely addresses micro aspects, the study of PES has not fallen short at all on reflections on specification and calibration (without explicitly using that nomenclature, as PES has been predominantly addressed by environmental economists, ecologists, and environmental studies scholars). The first PES guidelines by the end of 1990s highlighted the relevance of answering specification questions such as for what and where to pay, in what amount, under what conditions, and to whom Bishop and Pagiola (2002). Also, they stressed it was crucial to create governance structures in charge of managing and monitoring the program, essentially describing a calibration process for PES.

Specifically, when providing a guide to design PES, Wunder et al. (2020, 2018) for instance, mention elements such as defining appropriate payment amounts; selecting the appropriate payment vehicle; identifying suitable recipients; specific sites, as a function of the specific ecosystem services to be preserved, and concerns of additionality, among other criteria; timing of payments; and establishing methods to monitor agreements and evaluate results. The careful specification of these and other sensitive issues has produced a myriad of variations in the design of PES policies, and are tantamount to what Capano and Howlett (2021) would refer to as specification and calibration at the micro policy level.

What is lacking in the PES approach to the micro aspects of policy design then? On one hand, the economic perspective on PES offers at least two important advantages: it boasts stylized models (precise, testable, and flexible) to establish a causation model for the program and has provided empirical evidence through impact evaluation, assessing the program’s average effect on deforestation as a proxy for the production of ecosystem services (Alix-Garcia, Shapiro, and Sims 2010). On the other hand, the mechanisms activated by PES are often ‘black-boxed’. Many explanations of Payment for Ecosystem Services (PES), including those more comprehensive than typical microeconomic analyses, frequently overlook the detailed description of essential actions needed by both the target population and decision-makers to achieve intended outcomes. Recognizing the heterogeneity of agencies and the strategic behavior of decision-makers and targeted populations is crucial. Conversely, another segment of research provides detailed analyses of how PES programs are executed, yet critiques the foundational concept of PES—establishing contracts for forest conservation to produce ecosystem services in return for payments—arguing for different policy goals instead (Shapiro-Garza 2013).

The approach to PES policy design proposed here arises from the idea that effective policy creation requires not just a causation model but also careful consideration to the policy process and its inherent uncertainties (Mukherjee and Bali 2019; Peters et al. 2018; Capano and Howlett 2021). An effective policy design should bring together all the desirable qualities, including a model of causation, while ensuring that specification and calibration elements are closely aligned with the mechanistic nature of policy processes. However, there are no established methods for operationalizing such an approach, particularly when considering the practical needs of policy design.

This paper aims to bridge this gap by adopting a mechanistic approach to policy calibration, using a process theory of change approach as a tool to derive the key episodes from PES adoption to results (Capano and Howlett 2021; Camacho Garland and Beach 2023). Based on an actual PES features, the approach describes a plausible process theory of change for PES as a guide for policy calibration, focusing on identifying the entities and activities believed to constitute a causal chain leading to the expected outcome.

Policy design and process theory of change both require careful contextualization and an understanding of the empirical situation relevant to the design process. To substantiate the process theory of change for PES empirically, I utilize the federal Mexican case. This case offers several advantages: it was recognized as a standard case by literature and international policy experts in the early 2000s, it is thoroughly documented with calibrations and specifications that have evolved over twenty years through policy evaluations, political negotiations, and design considerations (Bishop and Pagiola 2002; Muñoz-Piña et al. 2008; Ezzine-De-Blas et al. 2017). Furthermore, this case is notable for its transparent design discussions and its influence on other PES programs globally.

The theory of change behind process theory of change approach (pToC) has a rich history as a robust methodology widely employed by evaluation scholars for assessing interventions and policies (see for instance Tilley and Pawson (2000)). While its efficacy in post hoc evaluations is well-established, there’s growing recognition among scholars that it holds potential for proactive use in policy design, known as ex-ante application. However, despite this recognition, there remains a notable absence of clear guidance on effectively integrating theory of change into the policy design process. Therefore, the primary contribution of this paper lies not in reiterating the established utility of the theory of change in evaluation circles but rather in offering a tangible proposal for its application in the specific context of policy design. By delineating practical methodologies for incorporating theory of change frameworks into policy formulation, this paper aims to fill a critical gap in existing literature and provide actionable insights for policymakers and practitioners seeking to enhance the effectiveness and rigor of their policy design endeavors.

The next section introduces briefly the literature of PES as a design instrument. The third section presents a first attempt to calibrate a PES program using the essential PES conditions as a basis, and a basic approach to calibration, pointing out what are the limitations of that approach. Then, the paper presents a mechanistic approach to PES, operationalized using the construction of a process theory of change inspired by the Mexican case. Building on the process theory of change approach, the following section develops a policy calibration exercise that rests on a model of causation, and the mechanistic approach centered on actors and actions based on the Mexican case. The paper concludes by summarizing the theoretical contributions of this research and suggesting directions for future exploration.

2. A brief review of the Payments for Ecosystem Services (PES) policy design

With more than 500 programs worldwide, the Payment for Ecosystem Services (PES) policy instrument has been one of the most innovative interventions of the last twenty years to reduce deforestation associated with the loss of ecosystem services (Salzman et al. 2018) ranging from water infiltration to mitigation of climate change, among many other benefits (Calder and Aylward 2006; Bruijnzeel 2004; Börner et al. 2020; Wunder et al. 2020; Salzman et al. 2018). Additionally, recent global trade interests in zero-deforestation commitments associated with the value chain of agricultural commodities have created renewed interest in how to design PES schemes that achieve behavioral changes in land management favoring effectiveness, equity, or other combination of policy criteria (Garrett et al. 2022; Lambin and Furumo 2023).

PES involves a voluntary agreement between forest communities and users of ecosystem services, often represented by government entities (Bishop and Pagiola 2002; Wunder 2005; Wunder et al. 2018; Salzman et al. 2018). Under this agreement, forest communities implement conservation practices that protect or improve specific services, such as water provision, flood mitigation, erosion prevention, and esthetic preservation, in exchange for monetary compensation. PES programs are an incentive-based policy instrument, conceptually similar to a market for ecosystem services, where forest communities “sell” the result of forest conservation, representing a particular ecosystem service, to buyers.

The pioneering and paradigmatic case of PES implementation occurred in Costa Rica in 1997, where forest owners received payments from hydroelectric producers and other industry donors (Bishop and Pagiola 2002). However, in most PES programs, the government acts as a facilitator, covering the transaction costs associated with the organization of forest owners and the charging industries or, in many cases, consumers of potable water with fees or donations to support the PES program (Salzman et al. 2018).

In contrast with other policy instruments lacking a clear causal explanation on how the intervention would lead to an expected outcome, most PES programs worldwide have a minimal theory of change based on neoclassical economic reasoning (Bishop and Pagiola 2002): they diagnose the public problem as a market failure (Weimer and Vining 2017), where the conversion of forested areas to alternative land uses is driven by forest owners, who perceive a higher profitability in those alternative uses of their land. Based on the above assumption, if the profit derived from alternative uses of forest land is compensated for keeping the land as a forested area, the reasoning goes, the forest would be preserved. If the payment offered is lower than the social benefits produced by the forest, there is justification for public intervention to enable such payments.

Synthesizing the principles of PES design, Wunder et al. (2018) provides the following elements that a PES instrument should include, based on theory and on practical experience, all of which are related to what the policy design literature would recognize as calibration/specification issues:

1. General terms of the contract: These include aspects such as contract length, payment schedule, minimum and maximum land surface covered, and payment levels.

2. Enrollment requirements and/or commitments: These involve conditions related to forest conservation, program management, reinvestment, and the development of productive projects.

3. Optional criteria: These include factors such as ejido status (communal land tenure in Mexico), forest certification, community territorial planning, participation of indigenous populations, marginalization indicators, integral development programs, and representation of women and youth in decision-making bodies.

4. Despite the importance of monitoring and conditioning payments, Wunder et al. (2018) find that enforcement of this key principle has been limited, possibly due to administrative constraints, competing objectives, and other factors.

In the next section, I use PES essential concepts to make a first attempt at policy calibration, pointing out the merits and limitations of using this minimal approach.

3. First attempt at calibration: PES without explicit development of mechanisms

This section presents a policy calibration exercise for PES using only the general recommendations for PES as outlined in the previous section. Figure 1 synthesizes PES assumptions: the adoption and proper calibration of PES should lead to forest conservation, thereby producing the anticipated ecosystem services.

Figure 1. Reduced form PES scheme.

This section attempts specification and calibration as they could have been applied to the Mexican Payment for Ecosystem Services (PES) as shown in Figure 2, following the minimal scheme a program should include, based on Capano and Howlett (2021); Capano and Toth (2023). The exercise reflects practices between 2003 and 2023 in the PES program, introducing the calibration model using Mexican data.

Figure 2. Key PES design elements.

PES calibration development should adhere to the minimal requirements shown in Figure 2, based on concepts from the previous section: it must include a payment that triggers behavioral change, target locations at risk of deforestation where forest cover is linked to the targeted ecosystem service, and incorporate monitoring and accountability rules to ensure credibility. This minimal exercise benefits from the causal model of economics inherent in PES’s initial conceptualizations, positing a behavioral model for conservation of ecosystem services and focusing on calibration and specification details. This scheme adheres to the recommendations that were considered the best practices for PES (Payments for Ecosystem Services) at the beginning of the 2000s and are still viewed as central to the instrument by a segment of the scholarly community. This approach posits that land-use change is attributable to the failure to internalize the positive externalities generated by forest conservation, thus impacting the individual cost/benefit analysis of forest stewards. If other factors are deemed more significant, as critics of the economics-based approach have suggested, alternative pathways to ecosystem service generation should be explored (for instance, one focusing on strengthening trust among users of forests and their ecosystem services).

The following is the specification of the Mexican PES program targets policy goals, as it actually occurred during the first years of the program, from 2003 to 2008:

• Expected outcome: The initial objective in 2003 was hydrological service conservation, later expanding to include carbon sequestration, biodiversity, and agroforestry services under the CABSA program. Flexibility was introduced depending on local government needs in a matching funds modality (“fondos concurrentes”) (Ezzine-De-Blas et al. 2017).

• Target intervention: The primary focus was on forest communities, where conservation was expected to yield ecosystem services. The causal model relies on internalizing conservation benefits through payments, with farmers engaging in conservation for monetary compensation.

• Time frame: Participating communities were eligible for benefits for up to five years, subject to annual compliance reviews.

• As to the calibration elements, a PES program involves the following:

• Stringency: PES’s voluntary nature is foundational, aligning behavioral change with target subjects’ interests. Contractual compliance becomes mandatory post-agreement, with noncompliance leading to incentive forfeiture.

• Public Visibility: Mexico’s federal social programs mandate public disclosure of procedural rules, including eligibility and beneficiary selection criteria, ensuring transparency and accountability.

• Resource Intensiveness: PES demands significant financial resources for incentives and human resources for managing eligibility, selection, and monitoring.

• Monitoring and Auditing: Implementing PES requires extensive fieldwork, geographic information systems for eligibility analysis, and remote sensing for deforestation prevention compliance verification.

• Accountability Rules: Enforcement includes monitoring conservation efforts and outcomes, withdrawing payments for noncompliance, and establishing precedence rules for program efficiency and risk management.

This first exercise represents a starting point, leveraging a strong theoretical and empirical causation model. However, it lacks detail in accountability rule design, agent identification, and potential uncertainties. It surpasses economic stylization but remains insufficient for comprehensive design needs. As Peters et al. (2018) describes, it resembles a synoptic approach, assuming a central planner can implement all elements without facing design challenges, target homogeneity, or strategic behavior based on utility maximization.

This section applied specification and calibration concepts to the Mexican PES program, detailing micro-level policy design and its impact on policy effectiveness and feasibility. While this checklist approach addresses minimal design aspects, it doesn’t ensure the expected outcome. To enhance the likelihood of PES programs delivering expected ecosystem services, a strategic, mechanism-focused approach is required. This should involve a series of steps leading to the desired outcome. The next section demonstrates this, conceptually based on Capano and Howlett (2021) and operationalized using a process theory of change method for policy design, as proposed by Camacho Garland and Beach (2023).

4. A mechanistic approach to PES: how to use a process theory of change to identify key episodes, actors and actions

In this section, I show a process theory of change as a way to operationalize a mechanistic approach to policy. As shown in the previous section, concept from economics and other management consideration considered in the PES literature are enough to generate program calibration. However, the approach abstracts away from the roles and influences of various actors involved, such as implementers, beneficiaries of ecosystem services, recipients of payments, and other stakeholders. It remains largely agnostic about the political dynamics, organizational resources, and varied capacities that play crucial roles in the program’s execution and success. These factors are context-specific and integral to a comprehensive understanding of the PES program. Empirical approaches based on impact evaluation are valuable to estimate the average effect of specific variables (which might measure or approximate different calibration/specification adjustment) but do not solve the challenge either of designing a program for a specific time and place. Therefore, there is a pressing need to move beyond this stylized economic reasoning toward a process theory of change that recognizes political, institutional, and organizational factors. This approach would incorporate these critical elements, offering a more realistic and contextually rich understanding of how PES programs operate and yield results.

Adopting the mechanistic approach as described by Capano and Howlett (2021), and utilizing the process theory of change approach (pToC) outlined in Camacho Garland and Beach (2023), this paper explores first-order effects of the Payment for Ecosystem Services (PES) program in Mexico. The analysis of the Mexican case is based on official policy documents, academic articles, and reports on the Mexican PES program. This comprehensive approach allows for an examination of the first-order mechanisms employed in shaping Mexican PES from 2002 to 2020, providing insights into both the successes and challenges of the program’s implementation.

In line with Capano and Howlett (2021)’s exposition of mechanisms, we can delineate the following sequence: payments to farmers (X) enhance the production of ecosystem services (Y) through a mechanism (M) that induces behavioral change in the target beneficiaries (T). This change involves a shift from altering land use in forested areas crucial for ecosystem services to conserving these lands. This conceptual framework underpins the original model of PES. The innovative aspect of the mechanistic approach used in this paper is its focus on a series of interconnected steps that constitute the mechanism (M, envisioned as a collection of interrelated mechanisms triggered by the adoption of PES), aimed specifically at facilitating the desired behavioral shift in the target population.

This approach is informed by the process theory of change as proposed by Camacho Garland and Beach (2023), which integrates process tracing methodology from Beach and Pedersen (2019) into policy evaluation. I apply this methodology for an ex-ante analysis, aiming to identify the critical events that policy design must foresee. pToC deconstructs the mechanism in the X $\to$Y relationship, allowing for a systematic understanding of how calibration decisions can facilitate the occurrence of key episodes. This approach enables an in-depth exploration of the entities and activities integral to the PES, tracing the causal pathways from policy instrument adoption to the achievement of desired outcomes, thus offering a comprehensive insight into the process’ dynamics.

4.1. Unpacking PES mechanisms using process theory of change (PToC in PES

Following the guidelines by Camacho Garland and Beach (2023), the analysis of PES is structured around a process theory of change (pToC), focusing on the key episodes that constitute the mechanism of its design and implementation. This methodological approach enables a granular understanding of how the PES program produced its contributions, thereby providing actionable knowledge for both improving the ongoing program and inspiring future program design. By dissecting the PES program through a pToC framework, the study offers an understanding of how the program navigated its challenges and achieved its goals, providing valuable insights for policy design and implementation in similar contexts.

In the analysis of the Payment for Ecosystem Services (PES) program, a clear definition of the intervention and its intended contributions is crucial. The primary intervention of the PES program was incentivizing forest land conservation to enhance ecosystem services, with the dual goals of improving these services and reducing deforestation. To achieve these outcomes, this analysis focuses in a likely pathway, namely the provision of direct financial incentives through PES, which is expected to trigger the active engagement of local communities on conservation. A critical component of this analysis was the detailed examination of the actions and interactions among key stakeholders, such as government agencies, local communities, and NGOs. This step was vital for understanding the causal linkages that influenced the program’s outcomes, focusing on unpacking the key episodes that shaped the trajectory and impact of the PES initiative.

In what follows, I describe the mechanisms that should be triggered by PES adoption, constituting the key episodes that should happen for the process to produce a pathway where PES preserved ecosystem services, following the process tracing logic of keeping in mind who are the actors and the activities at each episode. The processs is schematized in Figure 3.

Figure 3. First-order effects in mexican Payment for ecosystem services program: mechanisms as key episodes within pToC.

4.1.1. Mechanism 1: credible conditional payment goes where it matters

This aspect addresses a key specification issue: where should the payment be targeted? The payment ought to be directed to locations where the targeted ecosystem services are produced, which is the core of the PES concept, ensuring a specific service is provided. Additionally, the area should be prone to land use change, as otherwise, PES would not yield any meaningful difference. It is also anticipated that the payment should be substantial enough to influence cost-benefit considerations, leading those who voluntarily enter the program to perceive that they are making a beneficial decision.

To fulfill the ‘Payment Goes Where It Matters’ mechanism, both steps in the mechanism 1 shown in Figure 3 need to be executed. Step 1, in particular, is often oversimplified in terms of its complexity. Policy designers should specify that payments are targeted to areas where they are effective in producing a particular ecosystem service, such as hydrological infiltration in 2003 or carbon sequestration under the CABSA modality. Determining which forest polygons are capable of producing a given ecosystem service is a policy design challenge as much as a scientific endeavor.

The challenge of identifying optimal areas for PES payments relies heavily on a comprehensive understanding of varied local environmental conditions. This critical scientific task involves discerning areas where ecosystem services are produced and where conservation efforts would have the most significant impact. Notable contributions to this effort came from a team of experts at UNAM, Mexico’s National University, supported by INE (Carrillo Rivera 2004, 2006). Their analyses encompassed factors such as geomorphology, edaphology, climatic variables, and vegetation characteristics. This holistic approach, underpinned by support from entities like the World Bank and INE, was instrumental in determining the most effective and scientifically sound allocation of PES payments. Research and reviews by Bruijnzeel (2004), Calder and Aylward (2006); Calder, Smyle, and Aylward (2007), and Chomitz and Kumari (1998) were considered in the policy’s calibration process, under the aspiration that the PES program was aligned with its conservation and sustainability objectives (this was a complex issue, as will be pointed out in the last mechanism).

Any PES program seeking to identify effective payment locations must mobilize the scientific expertise available to stakeholders involved in policy calibration. In the Mexican case, this network included international experts, the national university, and research centers, all contributing to critical calibration decisions driven by ‘where it makes sense to pay?’ type of reasoning.

In terms of additionality, the specification must carefully consider paying in areas at risk of deforestation. This requires numerous inputs that should be translated into specific rules forming the target of the intervention, a key specification issue.

Moreover, the dynamics within the bureaucracy play a crucial role in the implementation of PES programs. Different members of the bureaucracy bring their unique preferences, understandings, beliefs, and interests to the table. Wunder et al. (2018) notes that the key principle of monitoring and conditioning payments has been rarely enforced, likely due to reasons such as administrative ease and conflicting objectives. However, the explanation may extend beyond mere administrative convenience. Factors like forbearance or weak institutional frameworks also play a role (Holland 2016). Although Wunder et al. (2020) provides a comprehensive theory of change for PES based on empirical evidence from numerous cases, it falls short in accounting for how suppliers engage in the program, including issues related to street-level bureaucracy and the necessity for capacity-building among targets. Activities and entities on the supply side have largely been overlooked. Insights from the street-level bureaucracy literature could shed light on numerous design components that are determined at the level of bureaucrats who interact directly with citizens. In the context of PES mechanisms, this interaction occurs in at least three critical phases: the promotion of the program, field evaluation (where evaluations conducted without direct contact might still be influenced by street-level bureaucratic decisions), and during the implementation and monitoring phases. Our understanding of how these processes are executed globally is limited, yet they could significantly influence the outcomes of PES programs.

Finally, all the above specification considerations, summarized in step 1, would not be of use if the rules set forth in the design are not enforced. The mechanism is complete if the second step in mechanism 1 is achieved, which, as detailed in the subsequent section, needs specific inputs and decision-making, representing a key calibration issue in terms of accountability rules.

4.1.2. Mechanism 2: payment changes substantively cost/benefit ratio producing conservation

The PES mechanism’s simplistic understanding assumes that communities, upon hearing of the program, would join if it benefits them in terms of cost/benefit assessments and comply if they believe the rules will be enforced. However, the reality is less simple. In Mexico, 80% of forest land is managed by collective entities like ejidos and comunidades, as noted by Muñoz-Piña et al. (2008). Their participation in PES requires consensus in assembly meetings and involves numerous members, leading to collective action challenges. To understand the effectiveness of economic incentives fully, a deeper investigation into the actions and responses of forest users, especially in ejidos, is necessary. The real challenge lies in understanding the collective dynamics and decision-making processes within these communities. This includes identifying potential winners and losers and exploring compensation mechanisms, crucial for understanding the varied success of the PES program across different locations. The enforcement of program rules is another aspect that needs careful consideration during the design and implementation stages.

By examining these uncertainties, researchers and policymakers can better understand the factors influencing conservation outcomes under PES. This insight is vital for designing and implementing future PES interventions, maximizing their effectiveness across diverse contexts.

4.1.3. Mechanism 3: forests preserved by PES actually produce ecosystem services

A significant source of uncertainty in PES is whether economic incentives effectively lead to conservation outcomes. Impact evaluations, such as Sims and Alix-Garcia (2017), suggest a positive but modest effect of PES on conservation. However, the exact mechanisms driving this impact are not fully understood. Calder, Smyle, and Aylward (2007) criticizes what he refers to as the “old paradigm,” which links forest protection or increase with enhanced water resources. He argues that this general conclusion can lead to misallocated resources. Similarly, Chomitz and Kumari (1998) challenges the received wisdom of afforestation leading to improved water quantity and quality. Muñoz-Piña et al. (2008) acknowledges that while this belief facilitated the adoption of PES, its long-term success depends on scientific evidence supporting the connection between conservation efforts and improved water flows.

Surprisingly, the final link in the chain of first-order effects—the direct relationship between forest conservation and ecosystem services, which sustained the argued evidence-based core of the instrument—is often the weakest in terms of evidence. Rather than empirical data, this link is often supported by shared beliefs among stakeholders about the benefits of forest cover.

5. From unpacking mechanisms to calibration

Once plausible mechanisms are identified, drawing from prior documents, academic and grey literature, and expert knowledge (Camacho Garland and Beach 2023), an effective policy design should aim to create conditions conducive to these mechanisms. It must also incorporate processes to address emergent uncertainties. Unlike engineering processes, political, institutional, or social processes might necessitate a broader consideration of the initially envisioned pathway. ‘Design’, applicable to various contexts including policy design, signifies the intention of an agent to outline a process, service, or action toward a specific objective. This paper presents a scenario where an agent purposefully develops a course of action by setting the calibration and specification of a policy instrument. A key distinction between policy design and other forms of design lies in its entanglement with social and political processes, where designs are challenged and influenced strategically by multiple actors. Our approach seeks to recognize the designer’s role in identifying critical opportunities for intervention, with a constant awareness of the political behaviors that must be considered within the design framework. Our focus is on the configuration of Payment for Ecosystem Services (PES), including decisions on payment details, recipient identification, and the selection of locations eligible for the program. Additionally, we discuss how to strategically select settings to mitigate political opposition. This revised reasoning emphasizes the role of design in policy development amidst complex social and political interactions.

In what follows, the PES mechanisms mentioned in the previous section will be linked with specific calibration elements, but unlike the version without processes’ key episodes, it will be explicit about actors, their actions, and the uncertainty of their actions.

As illustrated in Figure 4, each step of a mechanism correlates with specific policy specifications or calibration elements that require meticulous attention to function effectively. It’s crucial to recognize that each mechanism is indispensable for Payment for Ecosystem Services (PES) to achieve its intended impact.

Figure 4. Connection between mechanisms and calibration/specification elements.

In Mechanism 1, “Credible Conditioned Payment Goes Where it Matters,” the ‘precedence rules design’ is linked to a specification element (intervention target). This specifies that program administrators should ensure payments target areas at risk of deforestation, those crucial for specific ecosystem services, and where opportunity costs are low. This step would involve generating a deforestation risk map for all eligible forest areas and another one linking specific forest tracts to ecosystem services. The overlap of those two maps is where PES would produce the expected result. This implies that policy designers need to produce and periodically validate such information and its use in proposal analysis and selection. Understanding that this seemingly straightforward step involves numerous interconnected actions allows for a more comprehensive design approach. The second aspect of Mechanism 1 involves establishing a monitoring scheme that may require field work and remote sensing analysis (accountability rules), and accountability measures, ensuring payments are only made to compliant parties (stringency). Both steps establish a rule-enforcement, credible incentive.

Mechanism 2, “Payment Changes Substantively Cost/Benefit Ratio Producing Conservation,” is associated with calibration elements. The first step entails publicizing the program’s rules and implications for transparency and accountability. This includes informing citizens and community forest members who might be impacted by the ecosystem services generated (publicity). The second step, linked to resource intensiveness, hinges on providing sufficient financial incentives to tip the cost-benefit balance toward conservation. Payment duration, frequency, and distribution methods are critical here.

Mechanism 3, “Forests Preserved by PES Produce Specific Ecosystem Services,” connects all mechanisms to the ultimate goal: generating desired ecosystem services. Unlike the previous mechanisms involving active human intervention, this mechanism relies on natural processes. Here, the critical task is selecting appropriate locations where forest cover directly contributes to ecosystem services. This selection faces scientific uncertainties, necessitating continuous collaboration with the scientific community to ensure choices are scientifically sound.

If any of these mechanisms fail, the program’s foundational concept is compromised. For instance, if Mechanism 1 is well-designed but the payments do not target areas where ecosystem services are significantly impacted, the additional benefits from the program will be negligible. Similarly, if the behavioral trigger in Mechanism 1 is effective but the implementation process (Mechanism 2) fails due to inappropriate community engagement or unresolved collective dilemmas, the desired behavioral change will not materialize.

An alternative perspective suggests that monetary incentives might not be the only effective behavioral trigger. Some PES literature argues that trust-building may be complementary or even more relevant than financial compensation (Pfaff, Rodriguez, and Shapiro-Garza 2019; Kumar, Kumar, and Garrett 2014). In such cases, the design process should be flexible enough to identify and adapt to these behavioral dynamics, possibly by integrating trust-building mechanisms or even replacing PES with a different instrument within a broader policy mix.

Each mechanism is tied to specific specification and calibration considerations. A detailed derivation of specifications can benefit from additional process tracing tools, which propose a series of tests to ascertain the presence of a particular process (Schmitt and Beach 2015). The development of this methodology to policy design, which has been used in policy evaluation, it is beyond the scope of this paper but it might complement the procedure specified here.

In addressing the challenge of designing policies in contexts lacking a singular theory of change, I recognize that our proposed method is tailored for scenarios where at least a basic understanding of the underlying causes and potential triggers for behavioral change exists. This method is instrumental in clarifying the roles of actors and the sequence of activities necessary for developing a coherent design strategy.

In situations devoid of a clear theory of change, I advocate for the creation of a preliminary problem description that acknowledges existing uncertainties and adopts an adaptive approach for ongoing refinement (Sainz-Santamaria and Martinez-Cruz 2022). Facing environments with divergent stakeholder perspectives on desired outcomes, competing theories of change, or multiple, equally viable pathways requires a dynamic and iterative method. This approach demands thorough analysis of each alternative, outlining requisite actions and pinpointing possible obstacles or aids within political, organizational, and cultural contexts.

Moreover, leveraging insights from our Payment for Ecosystem Services (PES) case study, we illustrate how confronting these challenges through a process theory of change (pToC) enables the identification of strategic intervention points. This case exemplifies the practical application of pToC in navigating complex policy landscapes, highlighting the necessity of a flexible framework that can accommodate shifting stakeholder dynamics and evolving theories of change.

This reflection not only responds to the need for a flexible, iterative approach in the absence of a unified theory of change but also underscores the value of our method in fostering a comprehensive understanding of policy design processes amidst uncertainty. Our experiences with PES offer valuable lessons on employing adaptive strategies that anticipate and address the multifaceted challenges encountered in real-world policy design, contributing to the advancement of the field.

6. Conclusion

This study examines the application and calibration of the Payment for Ecosystem Services (PES) program in Mexico through a process theory of change, operationalizing a mechanistic approach to policy design. It demonstrates that PES, primarily an economic instrument, initiates various mechanisms leading to the desired policy outcomes. Incorporating process theory of change as a framework following Camacho Garland and Beach (2023), this paper not only tracks the sequence of actors and actions within PES but also outlines a practical pathway from the program’s initiation to the achievement of ecosystem conservation goals. Furthermore, the paper argues that integrating a process theory of change with PES is coherent with a mechanistic approach, allowing for a more detailed depiction of the policy process as a sequence of linked pairs of actors and activities. This approach not only enhances the understanding of PES mechanisms but also identifies critical areas of uncertainty in policy design, including political, bureaucratic, and scientific dimensions. This makes the approach more beneficial for practitioners, providing a structured method for designing policy specifications and calibrations while considering the need of a causation model and process-focused approach.

The research demonstrates the significance of assessing calibration changes in PES by examining mechanisms both in theory and practice. While economic models offer a theoretical framework, process tracing adds an empirical perspective to understand the practical challenges and details in policy calibration. In revisiting the evolution of policy design—from its first and second generations, which concentrated on the selection of appropriate policy instruments for defined public problems, to a more refined approach—this paper underscores the critical importance of calibration and specificity. The realization that a ‘one-size-fits-all’ model is insufficient marks a significant shift toward acknowledging the complex interplay of institutional and political factors that must be considered in policy design. Furthermore, this discussion extends to the mechanism level, highlighting that various pathways exist to achieve policy objectives, each requiring distinct adjustments and operating under conditions of political and scientific uncertainty.

Moreover, the research sheds light on the mechanisms that influence calibration decisions in the PES program, essential for maintaining its core causal structure while adapting to external pressures and challenges. A visual or schematic representation of the process has been provided to illustrate the approach used in this study.

Looking ahead, this research emphasizes the need for an inclusive and context-sensitive policy design process. It underscores the importance of integrating scientific, political, and operational aspects in policy calibration and specification. The insights from this study are applicable not only to environmental policy but also to other policy domains.

Future research should focus on applying this approach in various policy settings, exploring the policy capacities needed for detailed policy calibration and specification, and examining how insights from theories of the policy process can be incorporated into this analytical approach.

In conclusion, this study contributes to the policy design literature by showing how a thorough focus on calibration and specification, underpinned by a solid theory of change analysis, can substantially improve policy effectiveness, especially in complex environmental programs like PES.

Acknowledgements

I would like to acknowledge the valuable comments received during the panel Policy Engineering or Bricolage? Assessing the Micro-Dimensions of Policy Instruments, chaired by Giliberto Capano and Michael Howlett, at the International Conference on Public Policy in Toronto, Canada, in June 2023. Thanks go to Giliberto Capano, Nicolai Dose, Ishani Mukherjee, and Arnost Veselý, for their insightful feedback to an early draft of this research. I am also thankful to the two anonymous reviewers whose suggestions significantly enhanced an early version of the ideas presented in this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).