Institutional Design and Performance of Markets for Watershed Ecosystem Services: A Systematic Literature Review

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.

Watershed Eco-Compensation Mechanism in China: Policies, Practices and Recommendations

“…In general, considering China's existing watershed management system, the multistakeholder of WEC mainly includes governments in pursuit of ecological benefits, market entities in pursuit of economic benefits, and public organizations on the quest for social services. Various environmental NGOs and public organizations can be developed by strengthening the negotiation process through information disclosure and the decision making of the progress and results of compensation approaches [64,67,70]. If proper attention is paid to the disclosure, reporting, and archiving of information, the accountability and transparency of implementing the WEC mechanism will be effectively improved.…”

“…Besides central government financial subsidies and financial assistance, it can also incorporate public welfare investments and social donations in the local area. Decentralized funding sources may fail to carry out ecological restoration in time [70]. Therefore, building a WEC fund pool is essential to fully absorbing government transfer payment funds, special ecological compensation funds, remittance funds, and social donation funds.…”

“…The market-oriented operation mechanism is designed to positively stimulate the market activities of watershed participants [61,62,64,70]. Marked-oriented methodologies mainly include direct payment transactions, third-party intermediary transactions, water rights transactions, trust funds, and PPP water funds in order to explore and apply marketbased eco-compensation approaches, give full play to the role of market entities, and solve the problems of ecological environment destruction and unreasonable allocation of the watershed's environmental resources through ecological resource market transactions [61].…”

“…Therefore, market participants' negotiation relies on proposing a cost-effective ecological compensation method [69,70]. The adoption of market-oriented methodologies must be enhanced according to the following aspects: first, it is necessary to develop new industries of green agriculture, green industry, and green service industry and improve ecological damage evaluation technology; second, it is necessary to clearly define the legal obligations of the government, enterprises, are individuals for the environmental management and protection of the watershed, establish the water rights trading system, and implement water rights transactions; third, the upstream and downstream governments in the watershed are the organizers to try to establish enclave economic parks and innovate the ecological environmental protection market management model to promote transactional eco-compensation; fourth, the government must build a standardized supervision system and create a favorable market atmosphere, explore green financial models such as water funds, and formulate regulations for the development and administration of watershed resources, the conservation and construction of watershed ecological environments, and watershed investment and compensation to guarantee the smooth establishment of the WEC mechanism.…”

Ecological Safety Assessment and Analysis of Regional Spatiotemporal Differences Based on Earth Observation Satellite Data in Support of SDGs: The Case of the Huaihe River Basin

“…The basin ecosystem provides multiple ecosystem goods and services to residents, including freshwater and oxygen, supplies, purified water, and carbon fixation [6]. With rapid urbanization, extensive economic development, and explosive population growth, basins currently face several environmental problems, such as water pollution, reduced species diversity, and ecosystem degradation [7]. As a vital part of the terrestrial ecosystem, the protection and restoration of basin ecosystems are crucial to achieving SDG 15.…”