State Control as a Substitute for Environmental Regulation? Evidence from Chinese Cities

41 Pages Posted: 17 Oct 2017

See all articles by Valerie Karplus

Valerie Karplus

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Yasheng Huang

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Da Zhang

MIT Joint Program on the Science and Policy of Global Change

Date Written: October 16, 2017

Abstract

We investigate the role of state control of industry following an increase in the stringency of an environmental policy in a large developing country. Focusing on a national sulfur dioxide (SO2) cleanup campaign in China, we find that the pre-existing extent of state control over the primary targeted industry, coal-fired power and heat generation, predicts superior cleanup performance in cities. We find this effect is specific to state capital controlled by higher (central and provincial) levels of government, while the state capital share controlled by lower (prefectural cities and below) levels of government is negatively correlated with cleanup performance. Our results suggest that in China’s incomplete contractual environment, central state control partly substitutes for regulatory enforcement, providing an important societal benefit but ultimately implying limits to the impact of environmental campaigns.

Keywords: environmental regulation, state ownership, sulfur dioxide, China, enforcement

JEL Classification: Q52, R11

Suggested Citation

Karplus, Valerie and Huang, Yasheng and Zhang, Da, State Control as a Substitute for Environmental Regulation? Evidence from Chinese Cities (October 16, 2017). Available at SSRN: https://ssrn.com/abstract=3054141 or http://dx.doi.org/10.2139/ssrn.3054141

Valerie Karplus

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

Yasheng Huang

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Da Zhang (Contact Author)

MIT Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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