Ecological compensation or eco—compensation has been implemented mainly through institutional arrangement in China. In the farming—pastoral transitional zone of Inner Mongolia, eco—compensation has been implemented in two modes, one for land use abandonment and the other for production—structure adjustment. Based on a detailed field survey, this study performs a comparative analysis of the willingness of households to accept economic compensation and consequently evaluates the effects of the two eco—compensation modes. The mode of eco—compensation for land use abandonment lacks a mechanism for generating employment opportunities and so is unsustainable. In contrast, eco—compensation for production—structure adjustment makes the pastoral and farming scales of households decrease significantly and most importantly helps to generate more job opportunities. Although this mode faces households with more market risk, it provides an effective means for resolving conflicts between ecosystems restoration and regional socio—economic development.