A market sharing mechanism for watershed ecological compensation

Abstract

Abstract This study establishes a market sharing mechanism for watershed ecological compensation between an upstream and downstream government based on the game-theoretical approach. It is found that, in this transboundary market sharing mechanism, the upstream government is encouraged to make more effort to protect the watershed ecosystem. As a result, a market-sharing compensation mechanism can bring Pareto improvements to all stakeholders. Furthermore, the influences of several key factors on the performance of the market sharing mechanism are investigated, which provides theoretical guidance for establishing and implementing such a mechanism in practice.