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How do bureaucrats respond to hybrid incentive contract? Evidence from China’s air pollution controls

Author

Listed:
  • Cao, Guangyu
  • Weng, Xi
  • Xu, Mingwei
  • Zhou, Li-An

Abstract

This paper investigates how local bureaucrats in China respond to minimum targets for air pollution control, which are part of a hybrid incentive contract that simultaneously specifies high-powered incentives for economic growth. Using a novel prefecture-day level dataset on air quality and applying a Regression Discontinuity Design, we find strong evidence that air quality tends to improve when the air quality target is doomed to fail, but deteriorates significantly once early fulfillment of the target is secured. We develop a theoretical model to rationalize these findings and highlight the role of uncertainty faced by local bureaucrats in shaping their responses. Further analyses explore how local economic pressure, the punishment loss for failing to meet the target, regional differences, and political turnovers affect bureaucratic strategic behavior after the target completion status becomes known. This study sheds light on how hybrid incentive contracts function in a multitasking context.

Suggested Citation

  • Cao, Guangyu & Weng, Xi & Xu, Mingwei & Zhou, Li-An, 2026. "How do bureaucrats respond to hybrid incentive contract? Evidence from China’s air pollution controls," Journal of Public Economics, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:pubeco:v:259:y:2026:i:c:s0047272726001003
    DOI: 10.1016/j.jpubeco.2026.105664
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    Keywords

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    JEL classification:

    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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