River Chief System, Emission Abatement, and Firms’ Profits: Evidence from China’s Polluting Firms

Xiaoshu Xu, Yingying Cheng and Xuechen Meng
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Xiaoshu Xu: School of Economics, Shanghai University, Shanghai 200444, China
Yingying Cheng: School of Economics, Shanghai University, Shanghai 200444, China
Xuechen Meng: School of Economics, Shanghai University, Shanghai 200444, China

Sustainability, 2022, vol. 14, issue 6, 1-16

Abstract: This paper studies the firm-level impact of the river chief system (RCS), which is a decentralized policy in China for water protection, by investigating polluting firms’ emission abatement and the net operating profits. We have four main findings. First, on average, the RCS significantly reduced firm-level COD emissions by 3.7 percent, which was mainly caused by the emission abatement of firms in heavily polluting industries, non-state-owned firms, and firms in the eastern provinces. On the other hand, the RCS also significantly increased polluting firms’ profit by 3.1 percent, which was mainly caused by heavily polluting firms. Second, different regions adopted different strategies for pollution abatement, exhibiting a pattern consistent with the “pollution paradise” assumption in the central and western provinces. Third, polluting firms at provincial boundaries did not reduce their COD emissions, while polluting firms in the interior significantly reduced their emissions by 5.6 percent, indicating the strong free-riding incentive of local governments. Fourth, the increase in the profits of heavily polluting industries was mainly caused by the significant increase in market concentration and a possible transfer of the negative shock from the RCS along the production line. All results were also robust for firm-level NH 3 -N emissions. This paper provides new and insightful implications for policymaking for environmental protection.

Keywords: China; environmental policy; river chief system; water pollution (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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