Stringency of environmental policy in China: When pollution drives bribery

Aude Pommeret, Xiaojun Yu and Lin Zhang
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Aude Pommeret: IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc
Xiaojun Yu: CUHK - City University of Hong Kong [Hong Kong]

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Abstract: This study provides a political economy explanation for the recently increased stringency of China's environmental policy. Specifically, we argue that prior to 2009, bribery from polluting firms was relatively successful in persuading local regulators to implement weak environmental policies. Since that time, pollution has reached a threshold that significantly changed regulators' objectives, leading them to refuse bribes, hence strengthening environmental policy. Thus, we built a theoretical general equilibrium model (with uncertainty about a pollution-induced catastrophe) in order to investigate the decision-making of local regulators. Using pollution and bribery data from China, we empirically confirmed the existence of a threshold for PM2.5 and calibrated our theoretical model. We showed that the current pollution level is higher than the optimal level of 9 μg/m3 that a forward-looking regulator would target (with a 1.5% risk of facing a pollution catastrophe). This suggests that the current pro-environmental activities of Chinese firms have been triggered by the changing behaviors of local regulators.

Keywords: Bribery; Pollution; Regulator preferences; Uncertainty; Pollution-induced catastrophe (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

Published in Economic Modelling, 2022, 117, pp.106048. ⟨10.1016/j.econmod.2022.106048⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03969232

DOI: 10.1016/j.econmod.2022.106048

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