Adaptations in environmental management often involve complex problems of collective action. Institutions introduced to reduce the transaction costs of solving these problems often come at considerable cost. An Institutional Cost Effectiveness Analysis Framework (ICEAF) developed to provide a comprehensive and logical structure for economic evaluation of path dependent institutional choices in this domain, and a procedure for boundedly rational application of the framework, are proposed and illustrated in this article – including for the choice between water buy- back and infrastructure subsidy programs for recovering the ‘environmental water’ required to sustain the ecosystems of the Murray-Darling Basin. A research strategy developed to strengthen the knowledge base for applying this procedure is also proposed.