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Can Transverse Eco-compensation Mechanism Correct Resource Misallocation in Watershed Environmental Governance? A Cost-benefit Analysis of the Pilot Project of Xin’an River in China

Author

Listed:
  • Hong-Zhen Zhang

    (Hebei University)

  • Ling-Yun He

    (Jinan University)

  • ZhongXiang Zhang

    (Tianjin University
    China Academy of Energy, Environmental and Industrial Economics)

Abstract

Correcting resource misallocation that creates productivity and welfare losses is the key to correcting transboundary basin pollution. China has proposed a transverse eco-compensation mechanism (TECM) based on the traditional Coase scheme to solve the pollution of transboundary watersheds. But whether it can correct the misallocation of resources that cause productivity and welfare losses has been ignored in existing literature. This paper first conducts a theoretical analysis of the TECM’s resource allocation effect and operation mechanism. And on this basis, we use the cost–benefit analysis (CBA) method to show how TECM produced actions in relevant upstream regions towards correcting excessive pollution, and how TECM provided economic incentives for these regions to undertake these actions. The CBA analysis results are consistent with the theoretical analysis. The TECM project will benefit the upstream region with a discount rate of 3%, and the present value of the net income is 96.4 million yuan. The conclusion still holds in the case of different discount rates. The above results show that the TECM can correct the resource misallocation that creates productivity and welfare losses in cross-basin environmental governance, and provide economic incentives for upstream areas to correct environmental resource misallocation (excessive pollution). Finally, the TECM model has important policy implications for solving the problem of cross-basin pollution in other similar countries.

Suggested Citation

  • Hong-Zhen Zhang & Ling-Yun He & ZhongXiang Zhang, 2023. "Can Transverse Eco-compensation Mechanism Correct Resource Misallocation in Watershed Environmental Governance? A Cost-benefit Analysis of the Pilot Project of Xin’an River in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(4), pages 947-973, April.
    • Handle: RePEc:kap:enreec:v:84:y:2023:i:4:d:10.1007_s10640-022-00743-5
    DOI: 10.1007/s10640-022-00743-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Transverse eco-compensation mechanism; Xin'an River; Resource misallocation; Cost–benefit analysis;
    All these keywords.

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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