Costing biodiversity protection: payments for environmental services schemes in Lao PDR

A Payments for Environmental Services (PES) scheme that involves setting a 'pseudo market price' requires the estimation of demand and supply. This paper presents the estimated marginal costs of anti-poaching patrols designed to enhance biodiversity in two protected areas in Lao PDR. This supply information was used in conjunction with environmental production functions and estimated demand for biodiversity to determine the 'price' paid per patrol. Marginal costs were estimated through uniform-price conservation actions: Teams of local people interested in being part of the PES scheme bid for the number of patrols they would like to provide in response to a range of offered prices. The auction process generated a sequence of well-behaved price-quantity pairs that track the individual marginal cost function of each bidding team accounting for both fixed and variable costs. The marginal costs vary across bidders. These variations can be explained by differences in competing employment and income opportunities across bidders, village locations and seasons. The results provide evidence of heterogeneous opportunity costs of supply and suggest an efficiency loss in assuming homogeneity.