Institutional Embeddedness of Local Willingness to Pay for Environmental Services: Evidence From Matiguás, Nicaragua

The concept of Payments for Environmental Services (PES) has gained increasing popularity in the conservation literature as it offers the potential to reconcile opposing social and ecological objectives by paying land owners for the positive environmental externalities they generate on their land. Based on extensive fieldwork in Matiguás, Nicaragua, this paper aims to complement the literature on locally-financed PES schemes in agricultural watersheds. Using both qualitative and quantitative research approaches, it inquires into the under-researched demand-side potential by assessing local willingness to pay (WTP) for water and watershed services in an upstream-downstream setting. Our results show a significant WTP for improved water services and a clear local consciousness about upstream-downstream interdependencies, suggesting potential for a ‘Coasean’ water-related PES scheme. Contrary to expectations, the feasibility of such a locally-financed PES system is however undermined by prevailing local perceptions of agricultural externalities and entitlements, questioning the fairness of such payments. Also low levels of mutual trust seem to undermine the credibility of the PES framework. The viability and acceptance of locally-financed PES mechanisms will thus also depend on the prior social production of cognitive synergies and improved collective action.