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193 Markets for Watershed Services

Part 16. Land Use and Water Management

  1. Sylvia S Tognetti Consultant1,
  2. Bruce Aylward2,
  3. Guillermo F Mendoza3

Published Online: 15 APR 2006

DOI: 10.1002/0470848944.hsa202

Encyclopedia of Hydrological Sciences

Encyclopedia of Hydrological Sciences

How to Cite

Tognetti, S. S., Aylward, B. and Mendoza, G. F. 2006. Markets for Watershed Services. Encyclopedia of Hydrological Sciences. 16:193.

Author Information

  1. 1

    Environmental Science and Policy

  2. 2

    Deschutes Resources Conservancy, Deschutes Water Exchange Program, Bend, OR, US

  3. 3

    New York Department of Environmental Protection, Flushing, NY, US

Publication History

  1. Published Online: 15 APR 2006


Increasing degradation of watersheds has led to increased recognition of the services they provide in various forms of support for livelihoods and general well-being, as well as to a greater willingness to pay for them and to cooperate in initiatives to protect them. This is reflected in numerous initiatives, in which market-based instruments and other supporting institutional arrangements are used as a way to create incentives and to recover the costs of watershed protection, as well as to allocate water more efficiently among various uses. Many of these payment initiatives have focused narrowly on the role of forests in the hydrological regime as a way to justify funding for their conservation, but should be developed in the context of basin-wide management objectives, which provide a framework for considering the full range of interests that share a common river basin in the context of specific ecosystem functions that support them, and for identifying and quantifying trade-offs associated with various management options. In addition to forests, this would include consideration of the relative values of all types of land cover and land uses such as wetlands, riparian areas, steep slopes, roads, and management practices. It also requires an accounting for the role of human consumption in the modification of the hydrological cycle, so that these changes can be distinguished from natural variation, and so as to be able to distinguish biophysical from economic causes of scarcity. Economic justification for an initiative may also require that initiatives aimed at protection of freshwater supplies be part of a package of approaches designed to capture the value of multiple ecosystem services found in landscapes, and to resolve conflict among various uses. Given the heterogeneity of landscapes and the site-specific nature of ecosystem services, a key challenge is to develop the capacity for place-based approaches to monitoring and assessment. This article provides an overview of the types of economic instruments and institutional arrangements used to capture the value of watershed services, the assumptions on which they are based, institutional challenges faced in implementing them, and the kinds of scientific information needed to identify economic trade-offs, inform stakeholder negotiations, and support decision-making.


  • ecosystem services;
  • watershed management;
  • payments for environmental services