APOSS 102 - Shiran Victoria Shen

Stanford University
May 23, 2023 11AM-12PM EDT
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Coauthors and affiliations
Qi Wang and Bing Zhang, both of Nanjing University
governance, institutions, campaigns, regulation, environmental policy, China
Effective governance, or the implementation of state policies, requires solving the principal-agent problem. The principal can establish institutions or implement campaigns to restrain agent behavior. Conventional wisdom holds that institutions provide the foundation for regularized policy implementation, while campaigns drive ad hoc policy outcomes. The regularized patterns and long-term effects fostered by institutions are more in need than the short-term effects generated by campaigns for consistent and effective governance, making institutions the focal point for solving governance challenges. However, what remains to be explored is how campaigns can enhance institutions in fostering effective policy implementation. We theorize institutions can be ineffective when special interests capture the regulating bureaucracy. In such a case, campaigns are needed to break the capture and improve regulatory outcomes. To test our theory, we examine how local firms in China respond to changes in the mode of air pollution regulation. Using an original and fine-grained firm-level dataset, incorporating comprehensive and confidential statistics used by political and bureaucratic entities in decision-making, we find that higher-contributing firms, which contributed more to local revenues and thus were more favored by the local government and bureaucracy, committed more violations of environmental standards than lower-contributing firms. The worse performance of the higher-contributing firms happened even when their emissions were being actively monitored for compliance with institutional standards. However, after the central government started waging inspection campaigns, higher-contributing firms did not commit more violations. We posit that the threat local firms and officials faced of getting caught and punished by the central environmental authority deterred the higher-contributing firms from committing excess violations and lessened the regulatory capture of the
When Institutions Need Campaigns for Effective Governance