The long-term success of payment for environmental services (PES) schemes depends on adequate demand for services and sustainable financing. We examine the viability of using locally financed payments to protect watershed services in rural eastern Costa Rica. Using dichotomous choice contingent valuation, we measure households' willingness to pay higher water bills for a local PES programme to adjust upstream land use practices to protect downstream water quality. We found that every income segment of the local population of water-users exhibited significant demand and willingness to finance the PES programme to protect local water quality.



In Costa Rica, quality potable water is defined as water that can be consumed without diminishing users' health. National quality standards (i.e. Reglamento para la Calidad del Agua Potable) require potable water to fulfil certain physic-chemical and microbiological levels. Costa Rica's water quality regulation is updated according to new developments in the Standard Methods for the Examination of Water and Wastewater, which is a joint publication of the American Public Health Association (APHA), the American Water Works Association (AWWA), and the Water Environment Federation (WEF).


CARRS are also called Asociaciones Administradoras de Acueductos Rurales (ASADA). The only difference between these locally administered organizations is that ASADAs have gained legal authorization as a service provider from AyA, the Costa Rican National Aqueducts and Sewage Agency.

The text of this article is only available as a PDF.


AAPOR (2006) Standard Definitions: Final Dispositions of Case Codes and Outcome Rates for Surveys (Lenexa, KA: American Association for Public Opinion Research).
Arocena-Francisco, H. (2003) Environmental Service Payments: Experiences, Constraints, and Potential in the Philippines (Indonesia: World Agroforestry Centre (ICRAF)).
Astorga, Y. (2005) Estado y gestión del recurso hídrico en Costa Rica: informe final (San José, Costa Rica: Programa Estado de la Nación (PEN)).
AyA and OPS/OMS (2002) Agua potable y saneamiento de Costa Rica: análisis sectorial – Resumen Ejecutivo (San José, Costa Rica: Instituto Costarricense de Acueductos y Alcantarillados (AyA) and Organización Panamericana de la Salud/Organización Mundial de la Salud (OPS/OMS)).
Bawa, K. S., Seidler, R., & Raven. P.H. (2004) Reconciling conservation paradigms, Conservation Biology, 18(4), pp. 859–860.
Bishop, R. C., & Heberlein, T. A. (1979) Measuring values of extra-market goods: Are indirect measures biased? American Journal of Agricultural Economics, 61, pp. 926–930.
Bruijnzeel, L. A. (2004) Hydrological functions of moist tropical forests: Not seeing the soil for the trees? Agriculture, Ecosystems and Environments, 104, pp. 185–228.
Calvo, J. C. (1990) Water resources development in Costa Rica 1970–2000, Hydrological Sciences Journal, 35(2), pp. 185–196.
Cameron, T. A. (1988) A new paradigm for valuing non-market goods using referendum data: Maximum likelihood estimation by censored logistic regression, Journal of Environmental Economics and Management, 15, pp. 355–379.
Carson, R. (2000) Contingent valuation: A user's guide, Environmental Science and Technology, 38(4), 1413–1418.
Carson, R., & Groves, T. (2007) Incentive and informational properties of preference questions, Environmental and Resource Economics, 37(1), pp. 181–210.
Castro, E. (2001) Costa Rican experience in the charge for hydro environmental services of the biodiversity to finance conservation and recuperation of hillside ecosystems. International Workshop on Market Creation for Biodiversity Products and Services, OECD, Paris, 25–26 January.
Choe, K. A., Whittington, D., & Lauria, D. T. (1996) The economic benefits of surface water quality improvements in developing countries: A case study of Davao, Philippines, Land Economics, 72, pp. 107–126.
Cummings, R., Brookshire, D. S., & Schulze, W. D. (1986) Comparison studies: What is accuracy?, in: R. Cummings, D.S. Brookshire, & W.D. Schulze (Eds) Valuing Environmental Goods: An Assessment of the Contingent Valuation Method, pp. 71–110 (Totowa, NJ: Rowman & Allanheld).
Dietz, T., Ostrom, E., & Stern, P. C. (2003) The struggle to govern the commons, Science, 302(5652), pp. 1907–1912.
Dillaha, T., Ferraro, P., Huang, M., Southgate, D., Upadhyaya, S., & Wunder, S. (2007) Payments for watershed services regional syntheses. USAID PES Brief 7, United States Agency for International Development (USAID) 18.
Espinoza, A., Morera, A., Mora, D., & Torres, R. (2003) Calidad del agua potable en Costa Rica: situación actual y perspectivas (San José, Costa Rica: Organización Panamericana de la Salud/Organización Mundial de la Salud (OPS/OMS), Ministerio de Salud de Costa Rica e Instituto Costarricense de Acueductos y Alcantarillados).
FAO (2000) AQUASTAT-Information system on water and agriculture: Countries and regions – Costa Rica (Roma: Food and Agriculture Organization of the United Nations (FAO) – Land and water development division).
FAO (2004) Payment schemes for environmental services in watersheds – Land and water discussion paper 3. Regional forum, Arequipa, Peru, 9–12 June 2003 (Rome: Food and Agriculture Organization of the United Nations – Regional Office for Latin America and the Caribbean).
Ferraro, P. J., & Kiss, A. (2002) Direct payments to conserve biodiversity, Science 298(5599), pp. 1718–1719.
Ferraro, P. J., & Simpson, R. D. (2002) The cost-effectiveness of conservation payments, Land Economics, 78(3), pp. 339–353.
Grieg-Gran, M., Porras, I., & Wunder, S. (2005) How can market mechanisms for forest environmental services help the poor? Preliminary lessons from Latin America, Livelihoods, Forests, and Conservation, 33(9), pp. 1511–1527.
Haab, T. C., & McConnell, K. E. (1998) Referendum models and economic values: Theoretical, intuitive, and practical bounds on willingness to pay, Land Economics, 74(2), pp. 216–229.
Hanemann, M. W., 1984. Welfare evaluations in contingent valuation experiments with discrete responses, American Journal of Agricultural Economics, 66, pp. 332–341.
Johnson, N. L., & Baltodano, M. E. (2004) The economics of community watershed management: Some evidence from Nicaragua, Ecological Economics, 49(1), pp. 57–71.
Kaplowitz, M. D., Lupi, F., & Arreola, O. (2006) Local markets for payment for environmental services: Direct payment for watershed services. Paper presented at the Third World Congress of Environmental and Resource Economists, Kyoto, Japan, July 4–7.
Kaplowitz, M. D., Lupi, F., & Hoehn, J. P. (2004) Multiple-methods for developing and evaluating a stated preference survey to value wetland ecosystems, in: S. Presser, J. M. Rothgeb, M. P. Couper, J. T. Les, E. Martin, J. Martin, & E. Singer (Eds) Methods for Testing and Evaluating Survey Questionnaires, pp. 503–524. (Hoboken, NJ: John Wiley and Sons).
Kaplowitz, M. D., Ortega-Pacheco, D. V., & Lupi, F. (2008) Payment for environmental services and other institutions for protecting drinking water in Eastern Costa Rica, in: S. Batie, & N. Mercuro (Eds) Alternative Institutional Structures: Evolution and Impact, pp. 380–401 (London: Routledge Press).
Kerr, J. (2002) Watershed development, environmental services, and poverty alleviation in India, World Development, 30(8), pp. 1387–1400.
Kerr, J. (2007) Watershed management: lessons from common property theory, International Journal of the Commons, 1(1), pp. 89–109.
Kosoy, N., Martinez-Tuna, M., Muradian, R., & Martinez-Alier, J. (2007) Payments for environmental services in watersheds: Insights from a comparative study of three cases in Central America. Ecological Economics, 61 (2–3), pp. 446–455.
Máñez Costa, M., & Zeller, M. (2005) Calculating incentives for watershed protection. A case study in Guatemala, in: M. Markussen, R. Buse, H. Garrelts, M. Máñez Costa, S. Menzel, & R. Marggraf (Eds) Valuation and Conservation of Biodiversity, pp. 297–314 (Berlin: Springer).
Mendoza, G., Cash, S., & Adamowicz, V. (2007) Willingness to pay for water supply improvements: A comparison of regular neighborhoods and informal settlements in Queretaro, Mexico. AAEA, WAEA, and CAES joint annual meeting, Portland, OR, July 29-August 1, 2007.
Merrett, S. (2002) Deconstructing households' willingness-to-pay for water in low-income countries, Water Policy, 4(2), pp. 157–172.
MINAE (2005) Primera etapa: estrategia para la gestión integrada de recursos hídricos en Costa Rica. Proyecto BID ATN/WP – 8467- CR (San José, Costa Rica: Ministerio del Ambiente y Energía (MINAE) & Banco Interamericano de Desarrollo).
Miranda, M., Dieperink, C., & Glasbergen, P. (2007) Voluntary agreements in watershed protection experiences from Costa Rica, Environment, Development and Sustainability, 9(1), pp. 1–19.
Molnar, A., Scherr, S., & Khare, A. (2003) Who Conserves the World's Forests? A New Assessment of Conservation and Investment Trends (Washington, DC: Ecoagriculture Partners).
Mora Portugués, J. (2006) Contexto jurídico institucional y los principios del PAM en Costa Rica (San Jose, Costa Rica: MINAE – UNEP/PAM).
Pagiola, S. (2002) Paying for water services in Central America: learning from Costa Rica, in: S. Pagiola, J. Bishop, & N. Landell-Mills (Eds) Selling Forest Environmental Services: Market-Based Mechanisms for Conservation and Development, 37–62 (London: Earthscan).
Pagiola, S. (2006) Payments for environmental services in Costa Rica. Revised version of a paper presented at the ZEF-CIFOR Workshop on Payments for Environmental Services: Methods and Design in Developing and Developed Countries, Titisee, Germany, 15–18 June.
Pagiola, S., Arcenas, A., & Platais, G. (2005) Can payments for environmental services help reduce poverty? An exploration of the issues and the evidence to date from Latin America. World Development, 33(2), pp. 237–253.
Pattanayak, S. K. (2004) Valuing watershed services: Concepts and empirics from southeast Asia, Agriculture, Ecosystems & Environment, 104(1), pp. 171–184.
Postel, S. L., & Thompson, B. H. (2005) Watershed protection: Capturing the benefits of nature's water supply services, Natural Resources Forum, 29, pp. 98–109.
Redondo-Brenes, A., & Welsh, K. (2006) Payment for hydrological environmental services in Costa Rica: The Procuencas case study, Tropical Resources Bulletin, 24, pp. 19–25.
República de Costa Rica (1996) Ley Forestal. Asamblea Legislativa.
Salzman, J. (2005) Creating markets for ecosystem services: Notes from the field, New York University Law Review, 80(3), pp. 870–961.
Sánchez-Azofeifa, G. A., Harriss, R. C., & Skole, D. L. (2001) Deforestation in Costa Rica: A quantitative analysis using remote sensing imagery, Biotropica, 33(3), pp. 378–384.
Sánchez-Azofeifa, G. A., Harriss, R. C., Storrier, A. L., & de Camino-Beck, T. (2002) Water resources and regional land cover change in Costa Rica: Impacts and economics. International Journal of Water Resources Development, 18, pp. 409–424.
Shultz, S., & Soliz, B. (2007) Stakeholder willingness to pay for watershed restoration in rural Bolivia. Journal of the American Water Resources Association, 43(4), pp. 947–956.
Smith, V. K., & Desvousges, W. H. (1986) Measuring Water Quality Benefits (Boston: Kluwer Nijhoff).
Southgate, D., & Wunder, S. (2007) Paying for watershed services in Latin America: A review of current initiatives, SANREM CRSP Working Paper 07–07, OIRED, Virginia Tech, Blacksburg.
Whittington, D. (1998) Administering contingent valuation surveys in developing countries, World Development, 26(1), pp. 21–30.
World Bank. (2003) Water Resources Sector Strategy: Strategic Directions for World Bank Engagement (Washington, D.C: The World Bank).
Wunder, S. (2006) Are direct payments for environmental services spelling doom for sustainable forest management in the tropics? Ecology and Society, 11(2), pp. 23–35.
Wunder, S. (2007) The efficiency of payments for environmental services in tropical conservation, Conservation Biology, 21(1), pp. 48–58.
Zbinden, S., & Lee, D. R. (2005) Paying for environmental services: an analysis of participation in Costa Rica's PSA program, World Development, 33(2), pp. 255–272.
Zilberman, D., & Marra, M. (1993) Agricultural externalities, in: G. Carlson, D. Zilberman, & J.A. Miranowski (Eds) Agricultural and Environmental Resource Economics, pp. 221–267 (New York: Oxford University Press).