Abstract
Markets for watershed ecosystem services have been developed as a tool in integrated water resources management. The development of vast markets for watershed ecosystem services has raised attention for the performance of these markets, their institutional design, and how their institutional design influences market performance. The main research questions guiding this systematic literature review are: Which types of markets can be distinguished; how is market performance operationalized; which institutional design characteristics are distinguished in the literature; and which of these characteristics are crucial to understanding performance? A systematic review of 224 journal articles from Web of Science leads to several main findings regarding these questions. Market performance is usually equated with effectiveness in the reviewed articles. Discussions in these articles include whether the market contributes to the preservation of ecosystem services, what the distributional impacts are, and what the participation rate is. The reviewed articles have illustrated specific institutional design features as well. The key features include the security of property rights, role of governments, bundling of ecosystem services (ES), and role of trust. In those articles addressing the relationship between institutional design and performance, the relevance of monitoring and enforcement, clearly defined property rights, and geographical market scope have been pointed out.
Highlights
A watershed is an area of land that drains into a common water source [1]
This means we will use “markets for ecosystem services” as a generic term to refer to a wide range of economic schemes that take the ecosystem services we indicated above as commodities, including Payment for Ecosystem Services (PES), Payment for Watershed Ecosystem Services (PWS), cap-and-trade permits, certification schemes, and others
We wanted to learn more about the relationship between the institutional design and the performance of markets for watershed ecosystem services
Summary
A watershed is an area of land that drains into a common water source [1]. Pressures, such as population growth, socio-economic development, and climate change, result in a declining state of watershed ecosystems. Even though various market schemes have been rapidly designed and implemented, many of them are still at the early stage of development, and some are falling short Examining how they are functioning and what barriers they are facing could provide theoretical guidance to the future implementation of markets for watershed ecosystem services. It provides an opportunity to draw lessons about approaches to assess their outcomes and to achieve better outcomes This raises our research topic, namely a systematic literature review with regard to the relationship between the institutional design of markets for watershed ecosystem services and their performance. The paper aims, on the one hand, to provide an overview of articles that have analyzed and discussed this relationship regarding watershed ecosystem services and, on the other hand, to draw lessons on how institutional barriers prevent desired outcomes from markets for watershed ecosystem services and how institutional design may help to improve market performance. In light of this systematic review, we draw our conclusions in part five
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