Centralization or decentralization? the impact of different distributions of authority on China’s environmental regulation

Xiaohui Yang, Ji Yan, Kun Tian, Zihao Yu, Rebecca Yu Li, Senmao Xia

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

How to balance the central government and local governments’ political authority relating to environmental governance has long been a topic of intense debate in China. Since both environmental and economic regulations are regulatory tools of governments, political authority and systems must be considered in deciding to what extent to empower local governments. Central government needs to find a tradeoff point when being placed under the dual pressure of environmental protection and maintaining the economic growth rate. Based on a two level principal–agent model, our research compares the effects of centralized and decentralized governance on the efficiency of environmental regulation. Our results suggest that under decentralized environmental governance, the local governments’ incentives increase, which results in either “race to the top” or “race to the bottom” competition in environmental regulation. Moreover, such governance prompts local governments to reduce
their investment in economic development and environmental protection. However, decentralization in environmental governance will become more beneficial to the central government if the benefits of reducing information
asymmetry surpass enhanced agency costs; otherwise, centralized environmental governance is preferred. Our research proposes a hybrid model of centralized and decentralized environmental governance to help cushion firms against high agency costs and local government–firm collusion.
Original languageEnglish
Article number121172
JournalTechnological Forecasting and Social Change
Volume173
Early online date10 Sep 2021
DOIs
Publication statusPublished - Dec 2021

Funder

National Natural Science Foundation of China (Grant No. 71804198 ), Natural Science Foundation of Hunan province, China (Grant No. 2018JJ3699 ), Humanity and Social Science of Ministry of Education (Grant No. 18YJC790149 ), China-UK Innovation and Development Association (Grant No. RF350137).

Keywords

  • Centralization of authority
  • Decentralization
  • Economic growth
  • Environmental protection
  • Two-level principal–agent model

ASJC Scopus subject areas

  • Business and International Management
  • Applied Psychology
  • Management of Technology and Innovation

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