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讲座简介：
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This paper studies how incentive misalignment between central and local governments affects resource allocation and aggregate productivity. Leveraging China’s environmental mandate for public firms, we document a substantial shift of production and pollution to unregulated private firms. This reallocation is concentrated in cities where local officials face greater GDP growth pressure, and they strategically issue fewer violation notices to private firms. A calibrated general equilibrium model with endogenous enforcement reveals that this strategy mitigates local GDP losses but causes misallocation across firms. Uniform enforcement would instead incentivize private abatement, lowering total emissions and eliminating the aggregate productivity loss.
Leveraging China’s ESG mandate targeting public firms, we document pollution shift from regulated public firms to unregulated private firms post mandate, with more pronounced shift in cities under greater GDP pressure. Despite the shift, local governments issued fewer pollution violation notices (NOVs) to private firms than to public firms. These results suggest that Chinese local governments strategically enforce pollution regulations to balance local economic growth and compliance to state mandate. Calibrating a macroeconomic model with endogenous enforcement, our policy experiments show that uniform enforcement would incentivize abatement investment by private firms, leading to lower total emissions without causing misallocation. |
