Payments for watershed services: Directing incentives for improving lake basin governance

This study introduces the emerging integrated ecosystem management approach known as Payments for Watershed Services (PWS) as utilized for lake and reservoir basin governance. PWS is built on the central concept of providing economic incentives to watershed stakeholders to assist in management efforts. It channels conservation payments from downstream payers to finance conservation activities conducted by upstream payees. The upstream conservation activities are expected to enhance ecosystem functions, thereby improving water‐related ecosystem services desired by downstream stakeholders. Information on 163 PWS projects in 34 developing countries through the year 2008 was collected and analysed, including their common goals, processes, outcomes, scientific assumptions and socioeconomic rationales. This study recognized one unique PWS characteristic, namely the role of intermediary organizations (i.e. brokers) in integrating the economic incentives of upstream payees and downstream payers in order to facilitate their transactions by means of contracts. Although 75% of the reviewed PWS projects have focused on rivers, and only 10% have considered lakes and reservoirs, the similarity of the intermediary functions performed by lake management organizations and PWS intermediary organizations suggests a greater potential for the future application of PWS designs in lake basins. Drawing on components in the field of New Institutional Economics to interpret the intermediary function within the PWS framework, a three‐part PWS design with 15 steps is proposed in this study for lake basin governance, with a Costa Rican PWS scheme serving as an illustration. This study seeks to communicate the scientific and socioeconomic frontiers for developing locally suitable and integrated watershed governance structures to lake management organizations and other watershed stakeholder groups.