Environmental Regulations and Smallholder Farmers' Technical Efficiency: Empirical Evidence From Pastoral China

Existing studies on the association between environmental regulations and competitiveness have largely been conducted at the country, industry and firm levels, with little attention paid to their impacts on the economic performance of small farming households. We fill this gap by examining China's grassland ecological compensation policy, an environmental regulation aimed at grassland protection that restricts small herder households' grazing activities. Our empirical analysis is based on a relatively large‐scale dataset of 570 herder households, and a stochastic frontier analysis is conducted to determine the technical efficiency of livestock production. The results show that the governmentally imposed grassland ecological compensation policy improves herder households' technical efficiencies, supporting the Porter Hypothesis, which suggests that environmental regulations trigger competitiveness. Further analysis shows that balance grazing, which is a less stringent regulation type, is effective in increasing technical efficiency, whereas grazing bans, which form a more stringent regulation type, fail to promote technical efficiency. This supports the narrow version of the Porter Hypothesis, which suggests that flexible environmental regulations have greater innovation effects than prescriptive ones. In addition, we find a positive and significant relationship between payment intensity and technical efficiency. Grassland plots covered by grazing ban and meeting ecological restoration standards should be converted to balance grazing to improve herders' technical efficiencies.