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From command-and-control to market-based environmental policies: Optimal transition timing and China’s heterogeneous environmental effectiveness

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  • Tang, Maogang
  • Li, Xiuzhen
  • Zhang, Yun
  • Wu, Yingtao
  • Wu, Baijun

Abstract

Despite the rich literature on command-and-control and market-based environmental policies, the transition between them has received relatively less attention. This paper identifies that there exists an optimal transition timing from command-and-control policies to market-based policies by analyzing the trade-off between the abatement cost and innovation compensation effects of environmental regulations, and the optimal transition timing occurs when the marginal opportunity cost of pollution abatement equals the marginal output of capital input. Using province-level data of 30 regions in China from 2007 to 2015, we measure environmental efficiency by the slack-based model with desirable and undesirable output, and adopt the spatially adaptive semi-parametric model to carry out our empirical research, which shows that command-and-control policies, rather than market-based policies, promote China’s environmental efficiency. Enhancing investment in technological innovation contributes to improving environmental efficiency for both types of policies. Finally, the effect of such policies on environmental efficiency remains heterogeneous across regions.

Suggested Citation

  • Tang, Maogang & Li, Xiuzhen & Zhang, Yun & Wu, Yingtao & Wu, Baijun, 2020. "From command-and-control to market-based environmental policies: Optimal transition timing and China’s heterogeneous environmental effectiveness," Economic Modelling, Elsevier, vol. 90(C), pages 1-10.
  • Handle: RePEc:eee:ecmode:v:90:y:2020:i:c:p:1-10
    DOI: 10.1016/j.econmod.2020.04.021
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    More about this item

    Keywords

    Command-and-control environmental policy; Market-based environmental policy; Optimal transition timing; Environmental efficiency; Spatially adaptive semi-parametric model;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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