Centralization or decentralization? the impact of different distributions of authority on China's environmental regulation

Xiaohui Yang, Ji Yan, Kun Tian, Zihao Yu, Rebecca Yu Li and Senmao Xia

Technological Forecasting and Social Change, 2021, vol. 173, issue C

Abstract: How to balance the central government and local governments’ political authority relating to environmental governance has long been a topic of intense debate in China. Since both environmental and economic regulations are regulatory tools of governments, political authority and systems must be considered in deciding to what extent to empower local governments. Central government needs to find a tradeoff point when being placed under the dual pressure of environmental protection and maintaining the economic growth rate. Based on a two-level principal–agent model, our research compares the effects of centralized and decentralized governance on the efficiency of environmental regulation. Our results suggest that under decentralized environmental governance, the local governments’ incentives increase, which results in either “race to the top” or “race to the bottom” competition in environmental regulation. Moreover, such governance prompts local governments to reduce their investment in economic development and environmental protection. However, decentralization in environmental governance will become more beneficial to the central government if the benefits of reducing information asymmetry surpass enhanced agency costs; otherwise, centralized environmental governance is preferred. Our research proposes a hybrid model of centralized and decentralized environmental governance to help cushion firms against high agency costs and local government–firm collusion.

Keywords: Centralization of authority; Decentralization; Environmental protection; Economic growth; Two-level principal–agent model (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0040162521006053
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:173:y:2021:i:c:s0040162521006053

DOI: 10.1016/j.techfore.2021.121172

Access Statistics for this article

Technological Forecasting and Social Change is currently edited by Fred Phillips

More articles in Technological Forecasting and Social Change from Elsevier
Bibliographic data for series maintained by Catherine Liu ().