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This study undertook an assessment and gap analysis of the institutional arrangements for improved land and water management in the Tana and Beles Sub-basins highlands of the Blue Nile Basin. We explored the mandates and design features of the major land- and water-related institutional arrangements. Focus group discussions, key informant interviews, and a literature review were used in the analysis. The results of our work reveal that a lot of progress has been made in creating an institutional framework for improved land and water management and the policies and laws hitherto developed reflect global policy changes consistent with the widespread adoption of the integrated water resources management (IWRM) principles. There are also cases where informal institutions replace formal institutions. Judged by their enforcement, the water resources management, pollution control standards, and regulations and land use rights are not enacted effectively because of poor enforcement capacity. Overall there is a tendency to focus on command-and-control type policies. There is a need to strengthen traditional institutions by drawing lessons from their strengths and establish the legitimacy of these institutions. There is also a need to improve formal policy design, developing policies with specific objectives, goals, targets, and overall institutional changes and resources through active adaptive management to maximize the level and effectiveness of institutional learning. Finally, more focus needs to be given to incentive-based policies through increased use of positive incentives and more emphasis needs to be given to self-enforcement rather than third-party enforcement. KEY WORDS: institutional design, policy choices, Blue Nile Basin, Ethiopia, Africa, Introduction Land and water institutions play a vital role in managing and sustaining resources as well as in economic development and poverty alleviation (Ananda, Crase, & Pagan, 2006; Hannam, 2003). [...]