Transaction costs

Introduction: Transaction costs are the costs of negotiating, contracting, implementing, and monitoring a PES program. They include all costs borne by a PES program other than those of actually producing an environmental service (such as investment in new land-use practices). These costs include not only monetary but also non-monetary costs, such as time expended by various program participants. Transaction costs can be divided into two broad categories: (1) ex ante or initial costs of achieving an agreement, and (2) ex post or costs of implementing an agreement once it is in place. The specifics under each of these categories can vary by case. In general, PES programs face costs related to searching for program partners, negotiating contracts, obtaining necessary approval, monitoring program activities, complying with contractual agreements, and insuring against the failure to secure the environmental service.