IDEAS home Printed from https://ideas.repec.org/a/eee/jcecon/v53y2025i1p139-164.html
   My bibliography  Save this article

Organizing regulatory structure and local air quality: Evidence from the environmental vertical management reform in China

Author

Listed:
  • Li, Pei
  • Liu, Kaihao
  • Lu, Yi
  • Peng, Lu

Abstract

The effectiveness of environmental policies is often compromised by weak enforcement due to conflicts between local and national interests. We examine a novel institutional reform in China that centralizes the management authority of grassroots environmental bureaus to address the issue of local capture. By analyzing the staggered roll-out of this reform, we find that the Air Quality Index significantly decreased by 25.1%. We attribute this improvement to a reduction in the capture of front-line environmental regulators by local interest groups, alignment of interests between local regulators and their upper-level administrators, and increased efforts for environmental protection by local governments in a more independent and impartial regulatory environment. These results highlight the effectiveness of distributing management authority to different administrative levels, as it reshapes the incentives for local environmental regulators, strengthens enforcement efficiency, and facilitates the achievement of policy objectives.

Suggested Citation

  • Li, Pei & Liu, Kaihao & Lu, Yi & Peng, Lu, 2025. "Organizing regulatory structure and local air quality: Evidence from the environmental vertical management reform in China," Journal of Comparative Economics, Elsevier, vol. 53(1), pages 139-164.
  • Handle: RePEc:eee:jcecon:v:53:y:2025:i:1:p:139-164
    DOI: 10.1016/j.jce.2024.12.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0147596724000635
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jce.2024.12.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Thomas Ferguson & Hans-Joachim Voth, 2008. "Betting on Hitler—The Value of Political Connections in Nazi Germany," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 101-137.
    2. Michael Greenstone & Rema Hanna, 2014. "Environmental Regulations, Air and Water Pollution, and Infant Mortality in India," American Economic Review, American Economic Association, vol. 104(10), pages 3038-3072, October.
    3. Itzik Fadlon & Torben Heien Nielsen, 2019. "Family Health Behaviors," American Economic Review, American Economic Association, vol. 109(9), pages 3162-3191, September.
    4. Yingyi Qian, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 527-544.
    5. Chen, Jidong & Shi, Xinzheng & Zhang, Ming-ang & Zhang, Sihan, 2024. "Centralization of environmental administration and air pollution: Evidence from China," Journal of Environmental Economics and Management, Elsevier, vol. 126(C).
    6. Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1089-1127.
    7. Petra Persson & Ekaterina Zhuravskaya, 2016. "The Limits Of Career Concerns In Federalism: Evidence From China," Journal of the European Economic Association, European Economic Association, vol. 14(2), pages 338-374, April.
    8. Yanjun (Penny) Liao & Carolyn Kousky, 2022. "The Fiscal Impacts of Wildfires on California Municipalities," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(3), pages 455-493.
    9. Zhang, Bing & Chen, Xiaolan & Guo, Huanxiu, 2018. "Does central supervision enhance local environmental enforcement? Quasi-experimental evidence from China," Journal of Public Economics, Elsevier, vol. 164(C), pages 70-90.
    10. Yizhen Gu & Chang Jiang & Junfu Zhang & Ben Zou, 2021. "Subways and Road Congestion," American Economic Journal: Applied Economics, American Economic Association, vol. 13(2), pages 83-115, April.
    11. Margaryan, Shushanik, 2021. "Low emission zones and population health," Journal of Health Economics, Elsevier, vol. 76(C).
    12. Jian Chu & Raymond Fisman & Songtao Tan & Yongxiang Wang, 2021. "Hometown Ties and the Quality of Government Monitoring: Evidence from Rotation of Chinese Auditors," American Economic Journal: Applied Economics, American Economic Association, vol. 13(3), pages 176-201, July.
    13. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
    14. Esther Duflo & Michael Greenstone & Rohini Pande & Nicholas Ryan, 2018. "The Value of Regulatory Discretion: Estimates From Environmental Inspections in India," Econometrica, Econometric Society, vol. 86(6), pages 2123-2160, November.
    15. Michael Greenstone & Guojun He & Ruixue Jia & Tong Liu, 2022. "Can Technology Solve the Principal-Agent Problem? Evidence from China's War on Air Pollution," American Economic Review: Insights, American Economic Association, vol. 4(1), pages 54-70, March.
    16. Benjamin A. Olken & Rohini Pande, 2012. "Corruption in Developing Countries," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 479-509, July.
    17. David C Chan & Michael J Dickstein, 2019. "Industry Input in Policy Making: Evidence from Medicare," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1299-1342.
    18. Kirill Borusyak & Xavier Jaravel & Jann Spiess, 2024. "Revisiting Event-Study Designs: Robust and Efficient Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(6), pages 3253-3285.
    19. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
    20. Guojun He & Yuhang Pan & Takanao Tanaka, 2020. "The short-term impacts of COVID-19 lockdown on urban air pollution in China," Nature Sustainability, Nature, vol. 3(12), pages 1005-1011, December.
    21. repec:hal:pseose:halshs-01313799 is not listed on IDEAS
    22. Ruixue Jia & Huihua Nie, 2017. "Decentralization, Collusion, and Coal Mine Deaths," The Review of Economics and Statistics, MIT Press, vol. 99(1), pages 105-118, March.
    23. Janet Currie & John Voorheis & Reed Walker, 2023. "What Caused Racial Disparities in Particulate Exposure to Fall? New Evidence from the Clean Air Act and Satellite-Based Measures of Air Quality," American Economic Review, American Economic Association, vol. 113(1), pages 71-97, January.
    24. Paulina Oliva, 2015. "Environmental Regulations and Corruption: Automobile Emissions in Mexico City," Journal of Political Economy, University of Chicago Press, vol. 123(3), pages 686-724.
    25. Robin Burgess & Matthew Hansen & Benjamin A. Olken & Peter Potapov & Stefanie Sieber, 2012. "The Political Economy of Deforestation in the Tropics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(4), pages 1707-1754.
    26. Wang, Chunchao & Lin, Qianqian & Qiu, Yun, 2022. "Productivity loss amid invisible pollution," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    27. Chen, Shuai & Oliva, Paulina & Zhang, Peng, 2022. "The effect of air pollution on migration: Evidence from China," Journal of Development Economics, Elsevier, vol. 156(C).
    28. Eric Yongchen Zou, 2021. "Unwatched Pollution: The Effect of Intermittent Monitoring on Air Quality," American Economic Review, American Economic Association, vol. 111(7), pages 2101-2126, July.
    29. Li, Pei & Lu, Yi & Wang, Jin, 2020. "The effects of fuel standards on air pollution: Evidence from China," Journal of Development Economics, Elsevier, vol. 146(C).
    30. Manasi Deshpande & Yue Li, 2019. "Who Is Screened Out? Application Costs and the Targeting of Disability Programs," American Economic Journal: Economic Policy, American Economic Association, vol. 11(4), pages 213-248, November.
    31. Kenneth Y. Chay & Michael Greenstone, 2003. "The Impact of Air Pollution on Infant Mortality: Evidence from Geographic Variation in Pollution Shocks Induced by a Recession," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 1121-1167.
    32. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-656, May.
    33. Esther Duflo & Michael Greenstone & Nicholas Ryan, 2013. "Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1499-1545.
    34. Bo Zhang & Cong Cao, 2015. "Policy: Four gaps in China's new environmental law," Nature, Nature, vol. 517(7535), pages 433-434, January.
    35. Blundell, Wesley, 2020. "When threats become credible: A natural experiment of environmental enforcement from Florida," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).
    36. Wallace E. Oates & Paul R. Portney & Wallace E. Oates & Paul R. Portney, 2004. "The Political Economy of Environmental Policy," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 1, pages 3-30, Edward Elgar Publishing.
    37. Benjamin A. Olken, 2007. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 200-249.
    38. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    39. Zhangkai Huang & Lixing Li & Guangrong Ma & Lixin Colin Xu, 2017. "Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China," American Economic Review, American Economic Association, vol. 107(8), pages 2455-2478, August.
    40. Barreca, Alan I. & Neidell, Matthew & Sanders, Nicholas J., 2021. "Long-run pollution exposure and mortality: Evidence from the Acid Rain Program," Journal of Public Economics, Elsevier, vol. 200(C).
    41. Fredriksson, Per G. & Svensson, Jakob, 2003. "Political instability, corruption and policy formation: the case of environmental policy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1383-1405, August.
    42. Kong, Dongmin & Liu, Chenhao, 2024. "Centralization and regulatory enforcement: Evidence from personnel authority reform in China," Journal of Public Economics, Elsevier, vol. 229(C).
    43. Baker, Andrew C. & Larcker, David F. & Wang, Charles C.Y., 2022. "How much should we trust staggered difference-in-differences estimates?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 370-395.
    44. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    45. He, Guojun & Liu, Tong & Zhou, Maigeng, 2020. "Straw burning, PM2.5, and death: Evidence from China," Journal of Development Economics, Elsevier, vol. 145(C).
    46. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    47. Panle Jia Barwick & Shanjun Li & Liguo Lin & Eric Yongchen Zou, 2024. "From Fog to Smog: The Value of Pollution Information," American Economic Review, American Economic Association, vol. 114(5), pages 1338-1381, May.
    48. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    49. Joshua Graff Zivin & Matthew Neidell, 2012. "The Impact of Pollution on Worker Productivity," American Economic Review, American Economic Association, vol. 102(7), pages 3652-3673, December.
    50. Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2019. "The Effect of Minimum Wages on Low-Wage Jobs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1405-1454.
    51. Michelle Marcus & Pedro H. C. Sant’Anna, 2021. "The Role of Parallel Trends in Event Study Settings: An Application to Environmental Economics," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(2), pages 235-275.
    52. Dilip Mookherjee & Masatoshi Tsumagari, 2004. "The Organization of Supplier Networks: Effects of Delegation and Intermediation," Econometrica, Econometric Society, vol. 72(4), pages 1179-1219, July.
    53. Kostka, Genia, 2014. "Barriers to the implementation of environmental policies at the local level in China," Policy Research Working Paper Series 7016, The World Bank.
    54. Juliano Assunção & Clarissa Gandour & Romero Rocha, 2023. "DETER-ing Deforestation in the Amazon: Environmental Monitoring and Law Enforcement," American Economic Journal: Applied Economics, American Economic Association, vol. 15(2), pages 125-156, April.
    55. Lin Yang & Yatang Lin & Jin Wang & Fangyuan Peng, 2024. "Achieving Air Pollution Control Targets with Technology-Aided Monitoring: Better Enforcement or Localized Efforts?," American Economic Journal: Economic Policy, American Economic Association, vol. 16(4), pages 280-315, November.
    56. Sigman, Hilary, 2005. "Transboundary spillovers and decentralization of environmental policies," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 82-101, July.
    57. Pablo Balán & Augustin Bergeron & Gabriel Tourek & Jonathan L. Weigel, 2022. "Local Elites as State Capacity: How City Chiefs Use Local Information to Increase Tax Compliance in the Democratic Republic of the Congo," American Economic Review, American Economic Association, vol. 112(3), pages 762-797, March.
    58. Li, Hongbin & Zhou, Li-An, 2005. "Political turnover and economic performance: the incentive role of personnel control in China," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1743-1762, September.
    59. Guojun He & Shaoda Wang & Bing Zhang, 2020. "Watering Down Environmental Regulation in China," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 2135-2185.
    60. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    61. Michael Greenstone & B. Kelsey Jack, 2015. "Envirodevonomics: A Research Agenda for an Emerging Field," Journal of Economic Literature, American Economic Association, vol. 53(1), pages 5-42, March.
    62. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    63. Ernesto Dal Bó & Frederico Finan & Nicholas Y. Li & Laura Schechter, 2021. "Information Technology and Government Decentralization: Experimental Evidence From Paraguay," Econometrica, Econometric Society, vol. 89(2), pages 677-701, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Jidong & Shi, Xinzheng & Zhang, Ming-ang & Zhang, Sihan, 2024. "Centralization of environmental administration and air pollution: Evidence from China," Journal of Environmental Economics and Management, Elsevier, vol. 126(C).
    2. Li, Pei & Lu, Yi & Peng, Lu & Wang, Jin, 2024. "Information, incentives, and environmental governance: Evidence from China’s ambient air quality standards," Journal of Environmental Economics and Management, Elsevier, vol. 128(C).
    3. Nian, Yongwei, 2023. "Incentives, penalties, and rural air pollution: Evidence from satellite data," Journal of Development Economics, Elsevier, vol. 161(C).
    4. Yuan, Huaxi & Zou, Longhui & Feng, Yidai, 2023. "How to achieve emission reduction without hindering economic growth? The role of judicial quality," Ecological Economics, Elsevier, vol. 209(C).
    5. You, Chen & Cifuentes-Faura, Javier & Liu, Xiaoqian & Wu, Jinqun, 2024. "Can the government environmental vertical reform reduce air pollution? A quasi-natural experiment in China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 947-963.
    6. Brehm, Johannes & Pestel, Nico & Schaffner, Sandra & Schmitz, Laura, 2022. "From low emission zone to academic track: Environmental policy effects on educational achievement in elementary school," Ruhr Economic Papers 980, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Xie, Tingting & Yuan, Ye, 2023. "Go with the wind: Spatial impacts of environmental regulations on economic activities in China," Journal of Development Economics, Elsevier, vol. 164(C).
    8. Elisa Facchetti & Lorenzo Neri & Marco Ovidi, 2021. "Should you Meet The Parents? The impact of information on non-test score attributes on school choice," DISCE - Working Papers del Dipartimento di Economia e Finanza def113, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    9. Li, Zheng, 2025. "Polluting my downwind neighbor: Evidence of interjurisdictional free riding from air polluter locations in China," Journal of Environmental Economics and Management, Elsevier, vol. 130(C).
    10. Naso, Pedro, 2024. "Delegation of environmental regulation and perceived corruption in South Africa," Resource and Energy Economics, Elsevier, vol. 79.
    11. Gruhl, Henri & Volkhausen, Nicolas & Pestel, Nico & aus dem Moore, Nils, 2022. "Air pollution and the housing market: Evidence from Germany's Low Emission Zones," Ruhr Economic Papers 977, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    12. Li, Pei & Wu, JunJie & Xu, Wenchao, 2024. "The impact of industrial sulfur dioxide emissions regulation on agricultural production in China †," Journal of Environmental Economics and Management, Elsevier, vol. 124(C).
    13. Duan, Wenqi & Jiang, Mingming & Qi, Jianhong, 2024. "Poverty or pollution: The environmental cost of E-commerce for poverty reduction in China," Journal of Environmental Economics and Management, Elsevier, vol. 127(C).
    14. He, Wenjian & Chen, Xiaoyang & Liu, Zhiyong John, 2022. "Can anti-corruption help realize the “strong” Porter Hypothesis in China? Evidence from Chinese manufacturing enterprises," Journal of Asian Economics, Elsevier, vol. 80(C).
    15. Balietti, Anca & Zeising, Tom, 2024. "Racial Disparities in Environmental Auditing," Working Papers 0745, University of Heidelberg, Department of Economics.
    16. Weimin Xie & Jialu Guo & Hengxin Zhang & Mingxiao Fang, 2025. "Does vertical supervision enhance labor productivity? Evidence from China’s central environmental protection inspection," Palgrave Communications, Palgrave Macmillan, vol. 12(1), pages 1-15, December.
    17. Kong, Dongmin & Liu, Chenhao, 2024. "Centralization and regulatory enforcement: Evidence from personnel authority reform in China," Journal of Public Economics, Elsevier, vol. 229(C).
    18. Zhao, Da & Guo, Jingyuan & Yu, Shule & Yu, Litian, 2024. "Tradeoff between local protection and public sector performance: Lessons from judicial fiscal centralization," Journal of Economic Behavior & Organization, Elsevier, vol. 220(C), pages 254-278.
    19. Qi, Yu & Yin, Aoxue & Chen, Jianwei & Yang, Chunfei & Zhan, Pengyu, 2024. "Motivating for environmental protection: Evidence from county officials in China," World Development, Elsevier, vol. 184(C).
    20. Mikhail Mamonov & Anna Pestova & Steven Ongena, 2023. "“Crime and Punishment”? How Banks Anticipate and Propagate Global Financial Sanctions," CERGE-EI Working Papers wp753, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    Keywords

    Environmental governance; Conflicts of interest; Air quality;
    All these keywords.

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jcecon:v:53:y:2025:i:1:p:139-164. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622864 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.