Optimal Fiscal Decentralization and Incentive-Compatible Monitoring for Dual Public Goods: Forest Carbon Sinks and Water Retention

Forest ecosystems provide dual public goods of carbon sequestration and water conservation, yet optimal fiscal allocation mechanisms under multi-attribute public goods remain under-explored. This study constructs a principal-agent model incorporating asymmetric information and moral hazard to analyze the optimal fiscal allocation rights and incentive-compatible supervision mechanisms. The theoretical framework demonstrates that when forest ecosystems simultaneously produce carbon sequestration and water conservation services, the optimal fiscal transfer contract should incorporate performance-based incentives contingent on observable outcome indicators. The model derives closed-form solutions for optimal effort levels, supervision intensity, and fiscal allocation ratios under different information structures. Key findings indicate that: (1) dual-attribute public goods require differentiated incentive intensities based on measurement costs; (2) the optimal supervision probability increases with the divergence between social and private benefits; (3) fiscal decentralization with proper incentive alignment can achieve second-best efficiency. This research provides theoretical foundations for designing ecological compensation policies in the context of “dual carbon” goals and water security strategies.