Since the beginning of the transition to a market economy herders in Mongolia are encountering enormous challenges. Degradation of pastureland as resulting from overgrazing pastures seriously jeopardizes the vulnerable livelihood of small herders' household economies. To analyse herder's grazing behavior, the Ugtaal district in the Tov province (north of the capital) and the Gurvansaikhan district in the Dundgovi province (south of the capital) have been selected. In analysing collected primary data, it turns out with the help of a Principle Component Analysis that the herders in Ugtaal rank the perception of the quality of the environment second after a security factor, while the herders in Gurvansaikhan rank it first. A regression analysis indicates that richer herder do care more for the environment than poorer do in Ugtaal. Herders in Ugtaal face a reverse assurance game in choosing the growth in herd size. Hence, herd maximizing behavior leads to the highest payoff, while a second equilibrium exists where herders keep their herds constant. The herders in Gurvansaikhan also face a reverse assurance game in choosing the growth in herd size. The conclusion of this game is the same as for the game in Ugtaal. Hence, there are institutional alternatives in changing herder's behavior, but it comes at the cost of lowering their income from herding by about 30% in Gurvansaikhan, but the reduction can go up to 60% in Ugtaal. © 2005 Elsevier B.V. All rights reserved.