New Policy Directions 667
discover what works and what does not, for identification of research gaps and data
needs, and for a framework for building social consensus on policy where uncer-
tainty and unknowability predominate.
The focus on services to local and regional interests increases the likeli-
hood of sustained performance. Encouraging the involvement in the market by
owners of contiguous lands expands the kinds and values of the services that are
provided. Groups of farmers or landowners, for example, either themselves or bro-
kered through third-parties, such as government or even insurance companies, are
encouraged to form consortia to provide the services to private entities and quasi-
governmental agencies, such as sewage treatment plants, drinking water purveyors,
or even energy companies ( Donnelly, 2000 ).
Similarly, potential beneficiaries, public and private, could, either individu-
ally or collectively in the form of consortia, bid on the rights – or options – to use
specified agricultural lands or to specify the system of agricultural practices that
are used to produce agricultural goods. The value of the bid depends on the array of
ecological services that the lands could potentially provide, which in turn depends
on the pool of land put up to bid, its inherent characteristics, and its spatial fea-
tures, including its “ completeness, ” that is absence of holes in the covered land-
scape. Beneficiaries potentially supplement other interests ’ bids to ratchet up the set
of practices and hence the system of services that the landscape provides. Again,
the role of government in facilitating these new markets is to define the commodity
(in reality, “ service ” ) that is traded, clarify property rights, represent public interests
where the interests of society at large are at stake, and to either monitor and enforce
agreements or oversee the conduct of the latter through disinterested third-parties.
In doing so it reduces uncertainty and hence the costs of transactions and thereby
the scope of the market.
Identifying the proper unit of organization to supply the service that addresses
the problem in a cost-effective manner is crucial. Rather than the traditional focus
on the individual landowner or farmer, a higher organizational unit, such as a drain-
age or flood district, may more appropriately be targeted as the potential supplier
of the service. Nitrogen, for example, can be prevented from reaching water bod-
ies by constructing or restoring wetlands at key junctures where drainage systems
reach rivers or streams ( Vitousek et al., 1997 ; USDA, 2003 ). Yet the success of con-
structed wetlands to protect the resource requires cooperation of each member of
the drainage district, not just to provide the necessary conditions, but also to address
the free-rider problem whereby other farmers cannot be excluded from the bene-
fits provided by farmer or landowner on whose land the wetlands are constructed.
Hence, the parties to a contract for water quality would involve the drainage district
and a supplier or user of the resource.
The strategy is not meant as a substitute for regulation. It would not work in
watersheds or problemsheds where the value of environmental services to local or
regional stakeholders either cannot be established or where the monetizable value
of the service does not exceed the economic value derived from continuing existing
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