A factor-income approach to estimating grassland protection subsidy payments to livestock herders in Inner Mongolia, China

This paper contributes to the growing literature on land use policies designed to prevent livestock overgrazing. It offers a straightforward factor-income approach to calculating payments for ecosystem services (PES) to livestock producers who reduce or suspend grazing for the purpose of grassland restoration. Our approach requires only cross-sectional farm-level accounting data and is thus feasible where policies have either not yet been applied or specialized data is sparse, as is common in many developing regions. We apply and validate this approach with empirical analysis of sheep and goat herders in the Ulanqab prefecture in Inner Mongolia, China where herders currently receive payments in exchange for reduced grazing intensity on vulnerable land. However, observed stocking rates are still commonly higher than recommended. Our results suggest payments are currently insufficient to offset the financial loss incurred by herders who reduce their grazing intensity, a finding consistent with previous studies. Using an approach we refer to as the factor-income method, we estimate and validate new levels of recommended payments. This demonstrates how future payments could be tailored to meet the financial needs of individual herding communities using basic farm-level data.