In this paper, we incorporate interdisciplinary New Institutional and Transaction Costs Economics and suggest a framework for analysis of mechanisms of governance of agro-ecosystem services. Firstly, we present a new approach for analysis and improvement of governance of agro-ecosystem services. It takes into account the role of specific institutional environment; behavioural characteristics of individual agents; transactions costs associated with ecosystem services and their critical factors; and comparative efficiency of market, private, public and hybrid modes of governance. Secondly, we identify a spectrum of market and private forms of governance of agro-ecosystem services, and evaluate their efficiency and potential. Next, we identify needs for public involvement in the governance of agro-ecosystem services, and assess comparative efficiency of alternative modes of public interventions. Finally, we analyse structure and efficiency of governance of agro-ecosystems services in Zapadna Stara Planina (ZSP)—a mountainous region in North-West Bulgaria. Post-communist transition and European Union (EU) integration has brought about significant changes in the state and governance of agro-ecosystem services. Newly evolved market, private and public governance have led to significant improvement of part of agro-ecosystem services introducing modern eco-standards and public support, enhancing environmental stewardship, deintensifying production, recovering landscape and traditional productions, diversifying quality, products, and services. At the same time, novel governance is associated with some new challenges, such as unsustainable exploitation, lost biodiversity, land degradation, water and air contamination. What is more, implementation of EU common policies would have no desired impact on agro-ecosystem services unless special measures are taken to improve management of public programmes, and extend public support to major small-scale and subsistence farms.

The issues of assessment and management of ecosystem services have received increasing attention in recent years. A number of studies on specific challenges, institutions, and policies for agro-ecosystem services have also appeared. It is recognised that maintaining and improving ecosystem services requires an effective social order (governance) and coordinated actions at various levels—individual, organisational, community, regional, national and transnational. It is also known that effective forms of governance are rarely universal and there is a big variation among different ecosystems, regions and countries. Efficiency of environmental management depends on specific governing structures which affect individuals behaviour in dissimilar ways, give unlike benefits, command different costs, and lead to diverse performances.

Research on mechanisms of governance of agro-ecosystem services is at the beginning stage due to `newness' of problem, little awareness, emerging novel challenges, `lack' of long-term experiences, and fundamental modernisation during the last two decades. Most studies focus on certain hotspots or type ecosystem (e.g., pastoral) and individual modes (formal, contract, business and public). What is more, `normative' (to some ideal or external) rather than comparative institutional approach between feasible alternatives is employed. Likewise, significant social costs associated with the governance, viz., transaction costs are not taken into consideration. Furthermore, uni-disciplinary approach dominates, and efforts of economists, lawyers, ecologists, behavioural and political scientists are rarely united. Besides, there are little studies on specific natural, economic, institutional, international, etc., factors responsible for variation among ecosystems, regions, and countries. Consequently, understanding factors of governance of ecosystem services is impeded, spectrum of feasible modes—informal, market, private, public, integral, multilateral and transnational—cannot be identified, and their efficiency, complementarities, and prospects of development assessed. All these restrict our capability to assist public policies, and individual, business and collective actions for effective supply of ecosystem services.

Governance And Public Policy Journal, Ecosystem Services, Agro-Ecosystem Services, European Union Integration, Traditional Productions, Socio-Economic Development, Social Systems, Hybrid Organisation, Natural Resources, Private Organisations, Market Governance, Decision-Making Process, Organic Farming.