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This review explores how rural economies in developing countries can provide or enhance the provision of ecosystem services (ES). It does so by analysing two categories of ES that agricultural landscapes provide, namely carbon sequestration and hydrological services. One of the major constraints that rural economies face in providing ES lies in the public-good nature of many ES, which results in their underprovision. External factors, policies, processes and institutions, and the characteristics and perceptions of ES providers are important factors that influence ES provision (ESP). Payment for ecosystem services (PES) has emerged as a promising market-based instrument to incentivise the provision of ES. This review shows that despite its theoretical appeal, there are a number of practical challenges that hamper its wider application in developing countries. Scientific uncertainty about the relations between some management practices and the generation of ES persists. This uncertainty and other challenges such as the high transaction costs, insecure land tenure, limited demand and awareness, and the lack of capacity regarding the implementation of PES need to be addressed in order to increase ESP. The main drivers for PES schemes are external to the rural economy and come from both the international and the national level. In addition, perverse incentives and weak enforcement of environmental laws need to be addressed to foster the provision of ES and PES. In order to ensure and enhance the provision of ES in rural economies, it is important to continue to apply and revisit other instruments that address the public-good problem in addition to further improving and refining PES.
