This paper presents a framework to understand the relationship between efficiency and equity in compensation/ payment mechanisms for ecosystem services. We devote particular attention to the role of the institutional setting, social perceptions about economic fairness, uncertainty and interactions between agents, including power relations. We use the heuristic idea of the ‘policy trade-off curve”, which defines combinations between equity and efficiency that are theoretically possible to achieve. Different types of institutional factors not only determine which combinations may be feasible, but also influence the actual combination characterizing a particular scheme, as well as condition possible changes. By stressing the role of complex institutional relations in shaping this relationship, the paper attempts to go beyond the neoclassical vision on PES, which we argue has largely neglected the social embeddedness of market transactions.
