Giving Process its Due : can Collaboration Help Environmental Markets Succeed?

Emerging environmental markets assign economic value to ecosystem services and exchange them in market-like transactions. These markets are characterized by diverse stakeholder interests interacting with minimally defined transaction steps and high uncertainty. In this context, process plays an important role in shaping the institutions that make markets work or fail. If process matters, then market organizers need to intentionally craft processes just as they intentionally design institutions. This project explores a subset of four relatively established water quality trading programs that involved diverse stakeholders, and used differing forms of collaboration to design institutions. This research tests whether sometimes subtle changes in process significantly change the patterns of relationships and political consensus within environmental markets. Findings suggest trust and interdependent relationships play a crucial role by facilitating the flow of information, accessing new resources, and helping stakeholders deal with complexity. A process using consensusbased decision-making, providing opportunities to participate, and viewed as representative can generate rapid improvements in trust and relationships, independent of the capacities that exist before collaboration. These changes can sustain gains in political consensus generated through collaboration, but sustaining consensus may require periodic collaborative infusions. Trading also changed the patterns of influence. Third parties, such as special districts, trade associations, and non-profits, have become central actors, and government agencies mediate less between stakeholders as those parties form direct relationships. The relational changes created as markets emerge may be the bridge between collaboration in multi-party disputes and the more institutionalized forms of network governance needed for lasting consensus. Focusing on relational changes during institutional design brings up process characteristics that may be different than other collaborative contexts. Hierarchy and power imbalances do not need to be eliminated. In fact, the most successful markets retained core groups of influential individuals. This research found that the inclusiveness of the process and the diversity of the core group matters. Carefully crafted collaboration during institutional design can support markets that work. This includes mapping stakeholder relationships before discussions begin, creating multiple pathways for participation while sustaining a small core of representative stakeholders, and investing in transforming relationships as a precursor to transforming institutions