This paper presents a diagnostic approach to the role and capacity of governments to facilitate local collective action and alleviate environmental problems. The paper adds to a nascent scholarship aiming to conciliate theories on "governance by government" and "governance by self-organization". We adopt two premises for that purpose: (1) policy instruments shall be tailored to the strategic nature of local resource management decisions; and (2) such nature is not static and can be modified via governmental policies. We first build on the Institutional Analysis and Development (IAD) framework to characterize the decision-making situations that local resource users face and the local rules that shape said situations. Then, based on common pool resource (CPR) and policy instrument choice theory, we identify four mechanisms through which different policy instruments can facilitate local collective action (change in payoffs and their perception, reduction of transaction costs, reduction of uncertainty, and normative consonance). This analytical approach is then applied to four illustrative cases of water management in Germany, France, Greece and Spain. As shown, local resource users are embedded in not one but many overlapping decision-making situations. In this context, the promotion of collective action is rarely accomplished via a single policy instrument or mechanism but via bundles of them. Also, the paper illustrates the importance of understanding how governmental policies modify the structure of rules and incentives that affect local resource users, potentially facilitating local collective action and the solution of environmental problems.