Policy assessment from an institutional perspective follows the concept of institutions for sustainability, which is defined as the necessary institutional structure capable of delivering economic, social, and environmental sustainability objectives. Thus, the effectiveness of a policy and the cost-effectiveness of its implementation depend to a large extent on the degree of compatibility between this policy option and the respective institutional context. However, not least because institutions usually relate to a great diversity of situations, the state-of-the-art in institutional economics offers hardly any standardised procedures for institutional analysis that can easily be linked to environmental and agricultural models widely used for policy impact assessment. To assess the compatibility between policy options and various institutional contexts a formalised methodology has been developed that provides for an institutional dimension in modelling: the Procedure for Institutional compatibility Assessment‟ (PICA). PICA comprises four distinct steps: first, policy options are clustered according to the type of intervention (regulatory, economic, and advisory), the area of intervention(hierarchy/bureaucracy, market, and self-organised network), possibly induced property rights changes, and the attributes of the natural resource(s) addressed. This classification allows identifying the generic structure of a policy option. Second, each policy cluster is linked to specific sets of crucial institutional aspects (CIA) that may constrain or foster policy implementation. In the third step, institutional indicators are used to evaluate the potential of a respective CIA. Forth, combination of the identified CIA and assessment of their relative explanatory power leads to statements about the probable effectiveness of a policy option. The mainly qualitative PICA outputs are arranged in thematic categories of institutional compatibility. Following an overview about the state-of-the-art in approaches for policy assessment, this contribution will focus on the PICA methodology. In particular, the four distinct steps are elaborated on using a core element of the EU Nitrate Directive as a concrete policy example to illustrate the procedure. Finally, some ideas will be presented how PICA serves as a complementary tool for pre- and post-model analysis of environmental and agricultural models for policy impact assessment.