Designing community-based payment scheme for ecosystem services: a case from Koshi Hills, Nepal

  • Laxmi Dutt Bhatta
  • Arati Khadgi
  • Rajesh Kumar Rai
  • Bikram Tamang
  • Kiran Timalsina
  • Shahriar Wahid


The study was carried out to design payment for ecosystem services (PES) scheme to enhance the effectiveness of existing drinking water supply project. This study determined willingness-to-pay of water users using choice experiment method and identify the willingness of watershed households to participate in the scheme by household survey. The results suggest that creating a multi-stakeholder institution at the local level, led by local body, will make the implementation of the PES feasible. This would create trust between ecosystem managers and service consumers, facilitates monitoring system and encourages their participation in watershed management. In the beginning, water users would like to pay less than their willingness-to-pay because it may take time to improve the situation. This suggests that community-based payment for ecosystem services scheme in rural area can be kicked off, only after the external support this is because the amount committed by water users are not sufficient to implement all required activities and ecosystem managers will not make an investment expecting that they will be paid in the future. The study also recommends providing upstream communities in-kind support rather than cash may reduce the transportation cost as well as risk of corruption. This also ensures that the fund is spent on planned activities.


Watershed Incentives Local government Water users Institution 



This study is jointly undertaken by International Center for Integrated Mountain Development (ICIMOD)/Koshi Basin Programme (KBP) and Green Governance Nepal (GGN). KBP is supported by the Australian Government through the Sustainable Development Investment Portfolio for South Asia, as well as core funds of ICIMOD contributed by the governments of Afghanistan, Australia, Austria, Bangladesh, Bhutan, China, India, Myanmar, Nepal, Norway, Pakistan, Switzerland, and the United Kingdom. The views and interpretation in this publication are those of the authors and should not be ascribed to GGN, ICIMOD or their donors.


  1. Acharya, K. P. (2002). Twenty-four years of community forestry in Nepal. International Forestry Review, 4(2), 149–156.CrossRefGoogle Scholar
  2. ADB. (2011). Nepal small towns water supply and sanitation project: Project brief. (Asian Development Bank (ADB), Ed.). Kathmandu.Google Scholar
  3. Bhatta, L. D., van Oort, B. E. H., Rucevska, I., & Baral, H. (2014). Payment for ecosystem services: Possible instrument for managing ecosystem services in Nepal. International Journal of Biodiversity Science, Ecosystem Services & Management, 10(4), 289–299.CrossRefGoogle Scholar
  4. Bulte, E. H., Lipper, L., Stringer, R., & Zilberman, D. (2008). Payments for ecosystem services and poverty reduction: concepts, issues, and empirical perspectives. Environment and Development Economics, 13(3), 245–254.Google Scholar
  5. Corbera, E., Brown, K., & Adger, W. N. (2007). The equity and legitimacy of markets for ecosystem services. Development and Change, 38(4), 587–613.CrossRefGoogle Scholar
  6. Corbera, E., Soberanis, C., & Brown, K. (2009). Institutional dimensions of payments for ecosystem services: An analysis of Mexico’s carbon forestry programme. Ecological Economics. Accessed 21 September 2016.
  7. Daly, A., Hess, S., & Train, K. (2012). Assuring finite moments for willingness to pay in random coefficient models. Transportation, 39(1), 19–31.CrossRefGoogle Scholar
  8. Dixit, A., Upadhya, M., Dixit, K., Pokhrel, A., & Rai, D. R. (2009). Living with water stress in the hills of the Koshi basin—Google Scholar. Kathmandu: ICIMOD.Google Scholar
  9. DWSS. (2014). Initial environmental examination: Second small towns water supply and sanitation sector project-Dhankuta town project. Kathmandu: DWSS.Google Scholar
  10. Engel, S., Pagiola, S., & Wunder, S. (2008). Designing payments for environmental services in theory and practice: An overview of the issues. Ecological Economics, 65(4), 663–674.CrossRefGoogle Scholar
  11. Fauzi, A., & Anna, Z. (2013). The complexity of the institution of payment for environmental services: A case study of two Indonesian PES schemes. Ecosystem Services, 6, 54–63. Accessed 8 September 2016.
  12. Ferraro, P. J., & Kiss, A. (2002). Direct payments to conserve biodiversity. Science, 298(5599), 1718–1719.CrossRefGoogle Scholar
  13. Goldman-Benner, R., Benitez, S., & Boucher, T. (2012). Water funds and payments for ecosystem services: Practice learns from theory and theory can learn from practice. Oryx. Accessed 21 September 2016.
  14. Government of Nepal. (1999). Local Self-Governance Act 2055 (1999). Kathmandu, Nepal.Google Scholar
  15. Grima, N., Singh, S., Smetschka, B., & Ringhofer, L. (2016). Payment for ecosystem services (PES) in Latin America: Analysing the performance of 40 case studies. Ecosystem Services. Accessed 26 September 2016.
  16. Guthman, J. (1997). Representing crisis: The theory of Himalayan environmental degradation and the project of development in Post-Rana Nepal. Development and Change, 28(1), 45–69.CrossRefGoogle Scholar
  17. Hanemann, W. M. (1984). Welfare evaluations in contingent valuation experiments with discrete responses. American Journal of Agricultural Economics, 66(3), 332–341.CrossRefGoogle Scholar
  18. Hejnowicz, A., Raffaelli, D., Rudd, M., & White, P. (2014). Evaluating the outcomes of payments for ecosystem services programmes using a capital asset framework. Ecosystem Services. Accessed 26 September 2016.
  19. Hensher, D. A., Rose, J. M., & Greene, W. H. (2005). Applied choice analysis: A primer. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  20. Jack, B., Kousky, C., & Sims, K. (2008). Designing payments for ecosystem services: Lessons from previous experience with incentive-based mechanisms. Proceedings of the. Accessed 26 September 2016.
  21. Kumar, S., & Managi, S. (2009). Compensation for environmental services and intergovernmental fiscal transfers: The case of India. Ecological Economics, 68(12), 3052–3059.CrossRefGoogle Scholar
  22. Lancaster, K. J. (1966). A new approach to consumer theory. Journal of Political Economy, 74(2), 132–157.CrossRefGoogle Scholar
  23. Mátyás, C., & Sun, G. (2014). Forests in a water limited world under climate change. Environmental Research Letters, 9(8), 85001. Accessed 7 September 2016.
  24. McAfee, K., & Shapiro, E. N. (2010). Payments for ecosystem services in Mexico: Nature, neoliberalism, social movements, and the state. Annals of the Association of American Geographers, 100(3), 579–599.CrossRefGoogle Scholar
  25. MoFSC. (2014). Rate analysis for development activities related to forest, plants, wildlife and soil conservation—norms 2014. Kathmandu.Google Scholar
  26. Muradian, R., Arsel, M., Pellegrini, L., Adaman, F., Aguilar, B., Agarwal, B., et al. (2013). Payments for ecosystem services and the fatal attraction of win-win solutions. Conservation Letters, 6(4), 274–279.CrossRefGoogle Scholar
  27. Rai, R. K., & Scarborough, H. (2013). Economic value of mitigation of plant invaders in a subsistence economy: incorporating labour as a mode of payment. Environment and Development Economics, 18(2), 225–244. Accessed 30 August 2016.
  28. Rai, R. K., Shyamsundar, P., & Bhatta, L. (2016). Designing a payment for ecosystem services scheme for the Sardukhola watershed in Nepal (No. 108–16). SANDEE working paper. Accessed 6 September 2016.
  29. Rai, R. K., Shyamsundar, P., Nepal, M., & Bhatta, L. D. (2015). Differences in demand for watershed services: Understanding preferences through a choice experiment in the Koshi Basin of Nepal. Ecological Economics, 119, 274–283. doi: 10.1016/j.ecolecon.2015.09.013.CrossRefGoogle Scholar
  30. Rawlins, M., & Westby, L. (2013). Community participation in payment for ecosystem services design and implementation: an example from Trinidad. Ecosystem Services, 6, 117–121. Accessed 7 September 2016.
  31. Sangkapitux, C., Neef, A., Polkongkaew, W., Pramoon, N., Nonkiti, S., & Nanthasen, K. (2009). Willingness of upstream and downstream resource managers to engage in compensation schemes for environmental services. International Journal of the Commons, 3(1), 41–63.CrossRefGoogle Scholar
  32. Schomers, S., & Matzdorf, B. (2013). Payments for ecosystem services: A review and comparison of developing and industrialized countries. Ecosystem Services, 6, 16–30. Accessed 21 September 2016.
  33. Sovacool, B. K., D’Agostino, A. L., Meenawat, H., & Rawlani, A. (2012). Expert views of climate change adaptation in least developed Asia. Journal of Environmental Management, 97, 78–88.CrossRefGoogle Scholar
  34. To, P. X., Dressler, W. H., Mahanty, S., Pham, T. T., & Zingerli, C. (2012). The prospects for payment for ecosystem services (PES) in Vietnam: A look at three payment schemes. Human Ecology, 40(2), 237–249.CrossRefGoogle Scholar
  35. Upadhyay, B. (2005). Women and natural resource management: Illustrations from India and Nepal. Natural Resources Forum, 29(3), 224–232.CrossRefGoogle Scholar
  36. Wunder, S. (2005). Payments for environmental services: Some nuts and bolts (Vol. 42). Jakarta: CIFOR.Google Scholar
  37. Zander, K. K., & Garnett, S. T. (2011). The economic value of environmental services on indigenous-held lands in Australia. PLoS ONE, 6(8), e23154.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.International Centre for Integrated Mountain Development (ICIMOD)KathmanduNepal
  2. 2.WWF NepalBaluwatar, KathmanduNepal
  3. 3.Department for Management of Science and Technology DevelopmentTon Duc Thang UniversityHo Chi Minh CityVietnam
  4. 4.Faculty of Environment and Labour SafetyTon Duc Thang UniversityHo Chi Minh CityVietnam
  5. 5.Green Governance NepalKathmanduNepal

Personalised recommendations