In this paper we utilize a nationwide dataset on plot-level rangeland health, which has not been used in previous studies on the economic impact of rangeland degradation in Mongolia. Taking account of typical reverse causality between grass condition and pastoralists’ activities, we adopt a 2SLS instrumental variable approach to identify the impact of rangeland degradation on pastoralists’ farm performance and welfare. We find that rangeland degradation causes a significant decrease in livestock product sales, farm income, and total paid-out costs. But we do not observe a significant decrease in farm profit and total income of the households.