Sustaining watersheds that were developed through community mobilization are a major challenge in Ethiopia despite significant efforts to promote soil and water conservation technologies and approaches. This paper investigates the hypothesis that institutional rationality and functionality play an important role in developing enduring watersheds by comparing the good performing Model research watersheds and adjacent watersheds developed through extensively promoted community mobilization. A semi-qualitative research method was used by applying a multi-stage purposive sampling technique for selecting sample respondents. Based on the new institutional economic theory, twelve effective institutional indicators were devised for the evaluation. Questionnaires were designed and tested to solicit respondents’ perceptions on these indicators. Data were analyzed using the Mann-Whitney test. The results showed that significant differences were observed between the two watershed groups in relation to good interaction (p = 0.03) and technical rationality (p = 0.04). Most of the institutional characteristics and rationalities that led to better performance in the case of the Model research watershed were lacking in the community watersheds. In the Model watersheds, effective institutional characteristics and rationalities contributed to enhanced natural resource conservation, increased incomes, improved household food security, and provided additional social benefits. The most important lesson is that close follow-up and informed engagement leads to a speedy recovery and the sustainability of Community watersheds from implementing modest re-orientation of the existing institutional arrangements.
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