Ecological conservation or protection is a kind of socioeconomic activity with positive externality.To internalize the externality,the concept of Ecological Compensation (EC) is put forward.It adopts economic and market-based instruments to encourage people participate in ecological conservation.Participant Gets Principle (PGP) and Beneficiary Pays Principle (BPP) are the two basic principles of it.EC has been widely applied to afforestation,watershed management,agro-environmental protection,biodiversity conservation,carbon sequestration,and so on.While its theories and practices are still in infancy,the compensation system is imperfect with respect to who should be compensated,who should pay,how much to be compensated,and how to finance and allocate compensation payments.By reviewing EC approaches and some efforts that have been made in developed countries (e.g. America and some European countries) and developing countries (e.g. China and Latin American countries),we find out there was very little use of the BPP,ecology and economics have not been well integrated into EC studies,most programs just focus on payments,ignoring the influence of socioeconomic factors on ecological conservation,and so on.After the review and comments,we summarize a functioning mechanism of ecological compensation,which can guide us to improve ecological compensation system.The improvement methods concern:(a)identifying providers and beneficiaries of ecosystem services; (b)on the basis of opportunity cost approach,integrating ecological conservation with regional socioeconomic development,settling proper compensation standards to services providers;(c)calculating payment levels from the side of beneficiaries by integrating the quantity of services they receive,their willingness to pay and their bearing capacity;(d)seeking financing sources and allocating payments cost-effectively;and(e)building up the framework of EC.We consider an effective EC system should take “hematogenesis” rather than “blood transfusion” as its object,and EC research should integrate ecological theories and methods with those of economics.