Work Package One




Market-based instruments _ concept visualizationDesigning and implementing appropriate conservation policies, including through market-based instruments, first requires building sound conceptual foundations. INVALUABLE results are in this regard very useful.


The term of MBIs appeared in the 1970s and was applied to US environmental policy during the 1980’s (Boisvert et al., 2013; Méral, 2015; Hrabanski, 2015). The assumption they relied upon was that policies would be more effective if price signals were sent to stakeholders to induce changes in individual behaviour. Compared to administrative regulation or  command-and-control” MBIs appeared as innovative and promising instruments. In the field of biodiversity, the MBIs concept then arose during the second half of the 2000s following the political implementation of the concept of ecosystem services (ES) and the push by an advocacy coalition between economists from scientific arenas, big international NGOs (BINGOs), think tanks, environmental international institutions (OECD, IUCN, UNEP, etc.) and the private sector (Hrabanski, 2015). In developing countries, PES and biodiversity offsets (BO) were similarly promoted and implemented by BINGOs or international firms (see in Madagascar Bidaud, et al., 2015). In these countries however, PES and BO schemes are most often voluntary and only experimental. Hence, the term MBIs does not seem to be used explicitly (see in in Brazil Aubertin et al., 2014; Aubertin, 2015; Filoche, In preparation) and most national experts rather consider these schemes as a part of the green growth portfolio of BINGOs and global companies. All in all, the emergence of the term MBIs may be instead considered as a new way to group other types of instruments that in fact do not have a market dimension. This is for instance  the case of pre-existing instruments which, recently relabelled as MBIs, just reflect new perceptions and representations of them, and adopt the market language to be more acceptable in a context of free trade and globalization (see the Costa Rican case in Boisvert et al., 2013).


Indeed, INVALUABLE results have clearly showed that most so-called MBIs had little to do with the logic of a market, where the price is determined by the confrontation of supply and demand. Instead, a great heterogeneity and diversity of institutional arrangements was found in the literature and was better categorized into a new typology (Pirard and Lapeyre, 2014) which identified six types of MBIs: direct markets, tradable permits, auctions, Coasean-type agreements, regulatory price changes and voluntary price signals (Figure 1).

A new typology for so called “market-based instruments” (fig1)

Figure 1: A new typology for so called “market-based instruments”
Source: Pirard and Lapeyre (2014: 109)

Based on the strict analysis of economic characteristics of each conservation instrument reviewed, the typology allowed INVALUABLE researchers to show that very few instrument were in fact markets; on the contrary, bilateral payments and agreements seem to be the rule and the only common feature MBIs seem to share is that they aim at changing behaviour through a price signal (Lapeyre et al., 2012; Lapeyre and Pirard, 2013). As a result, one cannot infer any common advantage or limit from such an elusive MBI concept.

Empirically, INVALUABLE case studies provided essential evidence for this heterogeneity in institutional arrangements, most of the time diverting from market characteristics. Building on insights from new institutional economics, INVALUABLE distinguished three features of transactions that define different structures of governance: specificity, uncertainty and frequency. The emergence and stability of governance structures would then depend on the combination of these features (Lapeyre et al., 2014). For instance markets tend to be effective when assets hold a low degree of specificity, when uncertainty related to the transaction is low and when exchanges are frequent (Lapeyre and Pirard, 2013; Muradian and Gomez-Baggethun, 2013). US mitigation banks, BioBanking in Australia or the carbon market can be considered as examples of this type of governance structures. At the  opposite, when the situation is characterised by high asset specificity, high uncertainty and rare transactions, which tends to be common in biodiversity issues, structures of governance based on centralized authority (state or firm regulation) tend to be more effective. In between, most governance structures are actually neither market-based nor hierarchical, but have elements of both (hybrid), as illustrated in Figure 2 below in the case of biodiversity offsets (Froger, Ménard et al. 2015).

Most governance structures are hybrid, having both market-based and hierarchical elements

Figure 2: Opposing State and market is a false dilemma
Source: Muradian and Froger 2015, presentation at the final INVALUABLE Conference, Paris, 19 june 2015:



As a result, when looking at such heterogeneity in governance structures and their contingence to several context-related attributes one should refrain from proposing already made take-home recipes. The governance of ES is characteristically multi-layered, INVALUABLE contends. Multi-level governance entails a complex architecture involving a multiplicity of actors and many interrelations between the ‘local’ and the ‘global.’ The main issue for policy makers is thus not to select one specific instrument in a toolbox but to organize institutional arrangements between stakeholders at different levels to constitute a relevant policy mix. More specifically they need to ensure the legitimacy of decisions. Case studies indicated that PES design is neither just a contract between providers and users nor a market but rather a complex process sensitive to the economic and institutional context, including for example power relations or conflicts between stakeholders (Lapeyre et al., 2015;  Froger, Boisvert et al., 2015; Chervier et al., under review). Analysing this context before selecting a PES or a BO design is thus a major step to improve acceptability and relevance of a PES scheme.

Because opposing command and control and the market was shown to be a false dilemma, we thus suggest adopting the term “flexibility mechanisms and incentives” (FMI) to characterise measures intended to change behaviour through economic signals. The use of this term (that can be in cash or in-kind, collective or individual, etc.), we contend, is relevant because it spans a broad spectrum of possibilities and because it does not define a priori a specific system of governance. FMI are not tools leading to a specific management of ES but are part of integrated policies combining economic and non-economic (legislation, communication, awareness, participation, etc.) measures. Practitioners and decision-makers should therefore be careful, when designing MBI schemes, to take into consideration this diversity of options and combinations.