Blockchains for environmental monitoring: theory and empirical evidence from China

We explore the effects of a blockchain-based environmental monitoring technology on emissions. Our model of firm competition in the presence of regional regulators reveals that blockchain adoption reduces industrial pollution but triggers business relocation, creating trade-offs between local emission reduction and economic contraction. When pollution-induced social losses are highly dispersed across cities, a partial-adoption equilibrium fails to mitigate aggregate emissions because of the pollution leakage. We further present the first piece of empirical evidence corroborating model predictions, by taking advantage of a recent regulation change in China. The concentrations of SO2, NO2, and CO in blockchain-adopting cities are on average 16.6 percent, 7.9 percent, and 4.6 percent, respectively, lower than other cities. However, blockchain-based monitoring disproportionately hurts the industrial sector, and the average economic growth are 1.8–2.6 percent lower than other cities. Firms in adopting cities open more non-local plants to avoid regulation.