Using institutional grammar to improve understanding of the form and function of payment for ecosystem services programs

Payments for ecosystem services (PES) schemes are governed by complex institutional arrangements. Specific rules are needed to control who can participate in buying and selling of services, under what circumstances participation is allowed, how transactions are regulated, and many other actions. Decisions made by the developers of PES schemes about what rules to include and what form these rules take are likely to have an impact on the eventual success or failure of the scheme. This paper applies the Institutional Analysis and Develop Framework's rules typology and Institutional Grammar Tool to develop a new method of classifying and summarizing institutional arrangements of PES schemes. We use 21 water quality trading schemes and develop the institutional rules classification and summary system. The classification system enables comparative assessment of institutional diversity across PES schemes. We demonstrate the utility of the classification system for this purpose by showing that there is significant institutional diversity among water quality trading schemes, despite their common environmental objectives and market-based approaches to addressing environmental challenges. We conclude with suggestions for applying the classification system to comparative research to understand the effectiveness of PES schemes generally and how differences in institutional arrangements may contribute to success or failure.