Grassland is worldwide common pool resource. Existing studies on grassland degradation focuses in particular on technical solutions, with little attention to the institutional and policy driving factors of herders' behavior and the resulting in environmental effects. This may explain why the degraded grassland area is still expanding at a rate of about 2 million ha per year, despite the huge efforts made by the Chinese government at different levels to control grassland degradation. By analyzing data from 231 households from 17 counties of 6 provinces in western China and field survey information around Qinghai Lake collected in 2006 and 2007, this paper gives some interesting insights into how the institutional, policy and market factors drive the main and basic decision-makers on rangeland management in western China, and what the resulting environmental consequences are from the herders' activity choices under the prevailing rangeland property rights. Based on the main findings, policy implications can be suggested: when managing rangelands towards degradation alleviation, government's support on financing fencing, shed construction and forbidden grazing are very needed by the micro decision-makers. Policies that can help herders to be more likely involved in off-farm employment and to increase their income are desirable. In addition, to reduce the population pressure on rangelands is undoubtedly an effective way of alleviating degradation.