۱- Introduction

۲- Policy background

۳- Estimation strategy

۴- Main results

۵- Mechanisms

۶- Welfare analyses

۷- Conclusion

References

Abstract

This paper examines whether a target-based performance evaluation system can properly motivate local bureaucrats to implement an environmental regulation policy at the cost of slow economic growth. In late 2005, the Chinese central government made cutting sulfur dioxide (SO2) emissions the main performance evaluation criterion for prefectural city mayors and Party secretaries. Using a difference-in-differences framework, we find that the performance evaluation system caused a significant decrease in SO2 emissions, as well as in the GDP growth rate. Our mechanism analyses further corroborate that local bureaucrats in Two Control Zone cities were willing to trade off GDP growth to achieve the more stringent emissions reductions goal. Our findings contribute to the understanding of multitasking agency problems for government agents.

Introduction

Economic growth has many implications for the environment and sustainability. Longrun growth depends not only on emission flows but also on the assimilative capacity of the environment. The importance of environmental protection has brought emissions reductions to the awareness of policy makers in many developing countries. However, emissions reductions are usually tied to short-run growth cuts. In developing countries, where economic growth has been the focus, how can local bureaucrats be motivated to implement an emission control policy, and how would it affect economic growth? This paper investigates how local bureaucrats respond to a performance evaluation system targeting emissions control in China. China has been the fastest-growing major economy over the past three decades, but this growth has come at the cost of heavy environmental pollution.1 The central government realized the pressing environmental issues and proposed a major policy initiative in 1998 to establish control zones in regions with the highest levels of sulfur emissions or acid rain.