Chapter II analyzes the causes of water pollution finally. In the eyes of economy, externality and excessive use of water are causes of water pollution. But in the eyes of institution, institution failure is the fundamental cause of water pollution. It mainly shows two aspects. One is soft control of property right in water system. Another is soft control of water price. These institutions encourage people to use water excessively and cause water pollution. After finding the causes we must find solutions. After commenting on several solutions easily, we put emphasis on the solution the thesis supplies——market mechanism is led in through institution reforming. As a market where institution exists, the institution of property right and price is the most important. They are like right and left wheels of a carriage. No one can be ignored. So if we want to achieve above-mentioned goal, we must reform the institution of property right and price.
　　Notwithstanding they share the same aspects. Orientation of property right institution reform is different from that of price institution reform. The orientation of the former represent a kind of leissev-faire idea and emphasize to use market itself to solve water pollution. Its representative is Coase. Chapter III expounds the orientation of reform. This chapter treats Coase Theorem as concrete theoretical. Suspension and emphasize to create the institution of water right and emissions to lead market mechanism into water-pollution control to solve the problem with lower cost. Because property right is a kind of institution way that forms its authority to people. It’s the nature of market competition, property right supplies incentive of maximum of self-efficiency for people and implies an ideal anticipation that in one society, every unit making policy must consider the cost and help a person to have a deal with others in order to mold individual action water right and emissions belong to the usufructuary right of water. Water right is a kind of economic water use, emissions is a kind of ecological water use. Of course, as property right, water right and emissions must be complete. At least it should hold exclusiveness and transferability at the same time.

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