This report examines institutional constraints and opportunities in developing environmental service markets. It primarily draws from institutional studies on RUPES programs (Rewarding Upland Poor for Environmental Services they provide) in Indonesia. The studies combined desk reviews, field observations at RUPES sites in Sumber Jaya (Lampung), Bungo (Jambi) and Singkarak (West Sumatra), and in-depth interviews with key people in the field, relevant stakeholders and policy makers. The analysis mostly uses an institutional economic approach, combined with some quantitative analysis of transaction costs associated with existing and potential collective actions for reward transfers. The policy implications for institutional reforms were further enriched through discussion with fellow researchers, consultation with RUPES management, a review of literature related to environmental services, and comparison with similar cases in other parts of the world.