China Policy Journal Volume 1, Number 1, Fall 2018 | Page 70

Payment for Ecological Services and River Transboundary Pollution
Figure 4. PES Transfer Regime with Transboundary Pollution: Scenario 2
ario, we assume that region C exerts
more than necessary efforts and thus
brings the water quality back to Class
II level, which means a quality better
than what it received from its upstream
neighbor B. In such a situation, since C
helps D and F avoid the negative externality
from the Class III level polluted
water, C should be eligible to recuperate
the compensation paid by B to D and
F (illustrated by the arrows of the same
color but in opposite directions).
Based on this logic, if we conduct
a state preference study among
these cities with the aim of providing
a standard for PES, simply questioning
people’s WTP for the water quality improvement
target to Class II level cannot
give us the correct information about
the necessary amounts of payment
transfers between cities because the water
quality in the section of river flow
through one particular city depends not
only on the pollution discharged by the
city itself but also on the pollution flows
from the upstream cities.
We can use a WTP function to illustrate
this idea for the case of the five
cities A, B, C, D and F over the river.
The WTP for each of the five cities can
be written as
Here, we assume that the WTP
of the respondent living in a city i, W i
,
depends not only on the water quality
situation of the section of the river
flowing through the city, Q i
, but also on
whether the quality of the transbound-
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