Effect of eco-compensation policy on the environmental quality varies with city size and location in China's Yangtze river economic belt

Eco-compensation policy (ECP) is an important measure to secure ecosystem functions and services and to meet China's ecological civilization aspiration. In China, ECP has been implemented in the Yangtze River Economic Belt (YREB), given its strategic position. However, the implementation effects of ECP on different cities remain unclear. In this study, we collected panel data of 237 prefecture-level cities from 2010 to 2020, and evaluate ECP's effects on environmental quality of YREB using the methods of propensity-score matching and difference-in-differences. The results showed that: (1) ECP in the YREB significantly improved the environmental quality of all cities. Specifically, ECP significantly improved water quality and air quality at the level of 1 and 10%, respectively. The policy effect was significantly greater on water quality than air quality. (2) ECP's effects on environmental quality of the YREB varied with city size, generally with the strongest effects in smaller cities, followed by larger ones, and the weakest in mega-cities. (3) ECP's effects on environmental quality were differentiated by city location in the YREB, with significant effects on air and water quality in the eastern cities, significant effects solely on water quality in the central cities, and no significant effect noted in cities within the western region. Finally, our results highlight the government would implement the different ECP based on the city size and location in the YREB.