bargaining

IncompleteEnforcementofPollutionRegulation:

BargainingPowerofChineFactories

By

HuaWang*

NlanduMamingi**

BenoitLaplante*

and

SusmitaDasgupta*

January2002

*DevelopmentRearchGroup,WorldBank,1818HStreetNW,Washington,D.C.20433,U.S.A.

**UniversityoftheWestIndies,CaveHillCampus,Bridgetown,Barbados.

Pleaforwardcorrespondenceto:SusmitaDasgupta,DevelopmentRearchGroup,MC2-625,World

Bank,1818HStreet,NW,Washington,D.C.20433,U.S.A.

E-mailaddress:sdasgupta@:(202)522-3230.

2

Acknowledgements

WewishtothankverysincerelyZhenjiangEnvironmentalProtectionBureauforallowing

usawish

tothankverysincerelyProfessorGenfaLu(SchoolofEnvironment,NanjingUniversity)for

llythanktheWorldBankRearchDepartmentforits

ainingerrorsremainourown.

Thefindings,interpretations,andconclusionxpresdinthispaperareentirelythoof

notnecessarilyreprenttheviewsoftheWorldBank,itsExecutive

Directors,orthecountriestheyreprent.

3

Abstract

Alimitednumberofpapershaveempiricallyexaminedthedeterminantsofthe

monitoringandenforcementactivitiesperformedbytheenvironmentalregulator.

Moreover,mostofthestudieshavetakenplaceinthecontextofdevelopedcountries.

Inthispaper,weempiricallyexaminethedeterminantsoftheenforcementofpollution

ecily,weektoanalyzethedeterminantsoftherelative

bargainingpowerthatfirmsmayhaveintheirrelationwithlocalenvironmental

thatfirmsfrom

theprivate

alsoshow,contrarytopreviousresults,thatfirmsfacinganadverfinancialsituation

havemorebargainingpowerandaremorelikelytopaylesspollutionchargesthanwhat

theyshouldbepaying(lesnforcement).Finally,wealsoshowthatthehigherthesocial

impactofafirm’missions(asmeasuredbytheprenceofcomplaints),thesmallerthe

bargainingpowerofthefirmswithlocalenvironmentalauthorities.

KeyWords:Enforcement,bargainingpower.

4

uction

Alargeamountoftheoreticalrearchhasbeenconductedontheincomplete

enforcementofenvironmentalregulation,andhowregulatorsandfirmsrespondto

r,ontheempiricalside,onlya

handfulofempiricalstudieshavebeenundertaken,almostexclusivelyinthecontextof

developedcountries.1

Asmallnumberofpapershaveempiricallyexaminedthedeterminantsofthe

monitor

al.(1998)haveexaminedthedeterminantsofenvironmentalinspections(monitoring)in

thepulpandpaperindustryinCanada,andfoundthatlocalconditions(suchas

employmentconditions,andlocalenvironmentaldamages)explainvariationsin

monitoringintensityacrossplants:thelowertheunemploymentrateinaregion,andthe

higherthepotentialofdamagesfromafirm’missions,thehighertheprobabilityof

ndGray(1991),andGrayandDeily(1996)havesimilarlyanalyzed

thedeterminantsofinspectionsandenforcementactivitiesinthesteelindustryinthe

icular,GrayandDeily(1996)foundthatlargerfirmsinthesteel

industryaswellasfirmswithhighergrossprofitratesfacedlesnforcementactions

fromtheUnitedStatesEnvironmentalProtectionAgency.

Inthispaper,weempiricallyexaminethedeterminantsoftheenforcementof

pollutionchargesinChina.2China’spollutionlevysystemisoneofthemostextensivein

ingtothissystem,centralgovernmenttsupthelevelandstructureof

thepollutionlevybutletlocal(municipal)environmentalauthoritiesresponsiblefor

fectivelyleavesinthehandsofthe

localregulatorstheresponsibilityofestablishinghowmuchofthecalculatedleviesto

eexpected,WangandWheeler(1996)haveobrved

thatthecollectionofthefeesbylocalauthoritiesdivergesfromthelegalsystem

1SeeGarvieandKeeler(1994),en(1998)foraliteraturereview.

2ThepollutionchargesysteminChinaismostoftenreferredaspollution‘levy’.Wethusadoptthis

terminologyinthispaper.

5

icular,thelevelofcompletenessinlevy

collectionvariesmarkedlyacrosspollutingfirms:somefirmspay100%ofthepollution

chargestheyshouldbepaying,

databaofplantslocatedallacrossChina,Dasguptaetal.(1997)andWangandWheeler

(2000)haveshownthattheactualcollectionofpollutionleviesisnsitivetodifferences

ineconomicdevelopmentandenvironmentalquality:airandwaterpollutionleviesare

hisresultsupportsthenormative

theoryofregulationwhereitisassumedthattheregulatorekstomaximizesocial

welfare(Posner,1974),thepapersdonotektoexplainhowthecharacteristicsof

individualfirmsmayimpacttheirrelativebargainingpowerwithlocalauthorities.

Inthispaper,weektoanalyzethedeterminantsoftherelativebargainingpower

thatfirmsmayhaveintheirrelationwithlocalenvironmentalauthoritiespertainingtothe

thatfirmsfromtheprivatectorappeartohave

show,contrarytoGrayand

Deily(1996),thatfirmsfacinganadverfinancialsituationhavemorebargainingpower

andaremorelikelytopaylesspollutionleviesthanwhattheyshouldbepaying(less

enforcement).Finally,wealsoshowthatthehigherthesocialimpactofafirm’s

emissions(asmeasuredbytheprenceandnumberofcomplaints),thesmallerthe

bargainingpowerofthefirmswithlocalenvironmentalauthorities.

tctionprentsashortdescriptionof

Zhenjiangmunicipalitywheretheanalysistakesplace,andofthepollutionlevysystem

lyticalandstatisticalmodelsareprentedinSection3,whileresults

flyconcludeinSection5.

6

Context

(i)China’spollutionlevy3

China’spollutionlevyisoneofthefeweconomicinstrumentswithalong,

rmagnitude,the

neenvironmental

protectionlawspecifiesthat“incaswherethedischargeofpollutantxceedsthelimit

tbythestate,acompensationfeeshallbechargedaccordingtothequantitiesand

concentrationofthepollutantsrelead.”In1982,afterthreeyearsofexperimentation,

China’hen

billionsofyuan(US$1=8.2yuan)havebeencollectedeachyearfromhundredsof

thousandsofindustrialpollutersforairpollution,waterpollution,solidwaste,andnoi.

In1996,llionyuan

sareincreasing

eachyearwithasthenumberoffirmsincludedintheprogramincreas.

tewater,the

systemfirstcalculatesapollutionlevyonlyonthopollutantsthatdonotcomplywith

,amongthecalculatedlevies(foreachpollutantthat

doesnotcomplywiththestandard),thefirmmustpaythechargeonlyonthepollutant

whichviolatesthestandardbymost.4Thelevycollectedisudtofinanceenvironmental

institutionaldevelopment,theadministrationoftheprogram,andtosubsidizefirms’

irminvestsinpollutionabatement,amaximumof

80%ofthelevypaidbythefirmcanbeudtosubsidizetheinvestmentprojectpropod

bythefirm.

3ForacomprehensiveoverviewofenvironmentallegislationandinstitutionsinChina,eMei(1995)and

SinkuleandOrtolano(1995).Foradetaileddiscussionofthepollutionlevysystemitlf,eWangand

Wheeler(1996),andDasguptaetal.(2001).

7

InChina,theeffectiveimplementationofenvironmentallawsandregulations,

includingtheimplementationofthepollutionlevy,isinlargeparttheresponsibilitiesof

local,especiallymunicipal,e16ofChapter3oftheEnvironmental

ProtectionLaw(EPL)indeedstatesthat“thelocalpeople’sgovernmentsatvariouslevels

shallberesponsiblefortheenvironmentalqualityofareasundertheirjurisdictionandshall

takemeasurestoimprovethequalityoftheenvironment.”Asaresult,Environmental

ProtectionBureaus(EPB)havebeencreatedatalllevelsoflocalgovernments,from

PBsarethusresponsiblefortheimplementationofthe

pollutionlevysystem.

(ii)Zhenjiangmunicipality

Zhenjiang,withapopulationofapproximately3millionpeople,isanindustrial

rectlyundertheleadershipof

ang’sindustrialgrowthhasbeenextremely

rapidduringtheperiodofChina’ecourofthelastdecade,

Zhenjiang’sindustrialoutputincreadatanaveragerateof9%ustrial

ctoristhemostimportanteconomicctorofZhenjiangemployingalargepercentage

ofthetotallaborforce,wned

enterprisdonotdominateZhenjiangindustryasprivateinvestmentshaveconsiderably

tsimportance,therapidgrowthoftheindustrial

r,asaresultof

thisrapidexpansion,environmentalquality–bothairandwaterambientquality–has

significantlydeteriorated.

ZhenjiangEnvironmentalProtectionBureau(ZEPB)isattheapexofdecision-

mak

activitiesincludethecollectionofpollutionleviesandnon-compliancefees,the

monitoringofairandwaterambientquality,andthemonitoringandinspectionof

4After1993,thegovernmentstartedchargingforwastewaterdischarges(flow)whethertheeffluentmet

regulatoryconcentrationstandardsornot.

8

itoringandinspectionofindustrialfacilitiesinZhenjiang

(andinallotherEPBsinChina),romregular

inspectionactivities,complaintsmadebycitizensregardingenvironmentalincidentsmay

giveritofieldinspections.5Ifthepolluterisfoundatfault,variousadministrative

ayalsoincludetheneedforthe

emecas,theplantmaybeorderedtocea

andrelocateitsoperations.

LikeinotherareasofChina,eventhoughZhenjiangEPBislegallyresponsible

forenforcingenvironmentalregulations,ithaslimitedresourcesandpowertofully

ult,manypolluterscaneffectivelyavoidpayingcharges,

henjiangEPBisinapositiontoasssanddeterminethe

pollutionlevythatmustbepaidbyeachindividualpolluter,infact,itlacksallnecessary

tice,localauthoritiesmust

negotiatewithpolluters.6Hence,theeffectivepaymentmadebythepolluteristheresult

isnegotiationprocessthat

weektomodelbelow.

(i)Analyticalframework

Twogroupsoffactorsmaydeterminethelevelofcompletenessofthe

groupofdeterminantspertainstolocalsocio-

,thenationalpolicymayormaynot

circumstances,local

5AllChinecitizenshavearighttofilecomplaintsonpollutionmatters,andthehavetobefiledand

angEPBintitledtobringcastocourtonbehalfofthe

public.

6FormorediscussionsonenvironmentalenforcementissuesinChina,eWang(2001).

9

governmen

createsaphenomenonofendogenounforcementofanationalpolicy.7

Thecondgroupofdeterminantsofthelevelofenforcementisassociatedwith

,inmostcircumstances,localregulatorswillhaveto

aofpollutionchargesystem,regulatorswillhaveto

negotiateontheamountofchargesthatthepolluterswilleffectivelyhavetopayforits

xtentthattheagreeduponpaymentislessthanwhatthefirmshould

bepaying(accordingtothelegislation),thiscausincompleteenforcementofthe

regulation.

DefinethecompletenessofpollutionlevyenforcementinChina(noted

ij

EL)as

theratioofthepollutionchargesactuallycollectedfromapolluteriinaregionj(c

ij

L)to

thechargesthatshouldbecollectedaccordingtothenationalstandards(s

ij

L):

(1)s

ij

c

ijij

LLEL/=

Followingtheabovediscussion,thedegreeofenforcementofthenational

pollutionlevysystemixpectedtobeafunctionoflocalgovernment’nforcement

adjustmentofthenationalpolicy,andtherelativebargainingpowerofanindividual

),(

ijjij

PRfEL=where

j

Risavectoroflocalvariableswhichdetermine

thenatureofthelocaladjustmentofanationalpolicyinregionj,and

ij

Pisavectorof

variableswhichdetermineapolluter’srelativebargainingpowervis-à-visthelocal

enforcementagencies.

j

Rmayincludevariablessuchaslocalincome,educationlevel,

a,weexpectthe

followingfirmspecificvariablestoimpacttherelativebargainingpowerofthefirm:

7Intheenvironmentfield,thisphenomenonhasbeenempiricallyanalyzedinDionetal.(1998),Deilyand

Gray(1991),GrayandDeily(1996),PargalandWheeler(1996),andWangandWheeler(2000).

10

•ctaprivatelyownedplanttohavelesspowertobargain

withamunicipalEPBandelicitalowerpaymentthanothertypesoffirms,

expect

ij

ELtobehigherfor

privatelyownedfirms;

•hichemploymoreworkersshouldhavestrongerpowerto

expect

ij

ELtobelowerthe

largertheplantis(intermsofnumberofemployees);

•pollutermayormaynothavestrongerpowerin

ore,theeffectofthescaleofpollutiondischargeisan

er,pollutiondischargeitlfmaybeafunctionofthelevy

paper,pollutiondischargeistreatedasanendogenousvariable;

•fectremainsanempiricalissue;

•pectedthattherelativepowerandefforttonegotiatewithan

enforcementagencyforlesslevypaymentshouldbestrongerifacompanyhasa

rwords,themoreprofitableisafirm,themore

itcanaffordtopaythepollutionlevy,andthesmalleritscapacitytonegotiateand

evadepaymentofthefullamountofthecalculatedpollutionlevy;

•nywhichdemonstratessignificanteffortto

abateorreducepollutionshouldbemorelikelytosucceedinbargainingwiththe

environmentalenforcementagency;

•ithanegativeenvironmentalimage(asmeasuredfor

examplebythenumberofenvironmentalincidentsorcitizencomplaints)should

havelessbargainingpowerthananotherfirmwithapositiveenvironmental

image;

•catedpreviously,apolluterinChinaintitledtogetsome

refundofthelevyithaspaidifitcandemonstratethattherefundwillbeudfor

pectedthatafirmwhichissuccessfulin

gettingarefundinpreviousyearsmayreasonablyexpecttogetasimilarrefundin

thecurrentyear,andmaythereforeexertlesfforttobargainforlowerlevy

payment;

11

•hepollutiondischargevariable,weexpectthe

numberofinspectionsatanygivenfacilitytobeitlfendogenoustothepollution

levy,anditwillthusbetreatedthatway.

(ii)Econometricmodeling

Sinceinthispaperwearefocusingourrearcheffortstrictlyinonemunicipality

(Zhenjiang),thevectorofvariables

j

Ristreatedasaconstantvectorinthefunction

),(

ijjij

PRfEL=.Therefore,variancein

ij

ELixpectedtobedeterminedonlyby

ij

P.

Giventhatboththenumberofinspectionsandthelevelofdischargesaretreatedas

endogenousvariables,thesystemofequationsweektoestimateisasfollows:

(2)

ititititiit

vbPOaLccaLcinspaTimeacInsp++++++=

−−−1,51,31,21

(3)

ititiitiitit

mdPOInspZXcPO++++++=

−1,21

δδγβ

(4)

itiitititiitit

uInspPOSZXcEL+++++++=αφφφφφ

54321

Where

i=1,2,3,…,Nstandsforfirm;

t=1,2,3,…,Tstandsfortime;

Inspisthenumberofinspections;

Lcinspisthecumulativenumberofinspectionsuptotimet-1;

Lccisthecumulativenumberofcomplaintsuptotimet-1;

POisthelevelofdischargesrelativetothestandard;

Xisamatrixoftime-varyingvariableswhichconsistsof:

Emp(numberofemployees);

State(dummyvariabletoindicatestateownedenterpri);

Coll(dummyvariabletoindicatecollectivelyownedenterpri);

Fjv(dummyvariabletoindicatejointventure);

Zisthematrixofdummiesforctorssuchastextile,petrol,tobacco,

construction,food,beverage,metal,paper,andchemical;

12

EListheratioofwaterlevyactuallypaidtowaterlevythatshouldbepaid;

Sisthematrixoftime-varyingvariableswhichconsistof:

Profem(profitpernumberofemployees);

Lref(lagrefund/laglevypaid);

Ratwtop(pollutioncontroloperationcost/totaloperatingcost);

Cmpaccon(complaintsoraccidentsorconflictswithlocalcommunities);

b

i

,d

i

,a

i

arefirmspecificeffectsinthefirst,cond,andthirdequation;

v

it

,m

it

,u

it

aretheusualerrorterms.

Thefollowingassumptionsaremadeinestimation:

•thefirmspecificeffectsarerandom;

•thethreeerrortermsareuncorrelatedandwellbehaved;

•thelaggedpollutionvariableisuncorrelatedwiththeerrorterminthefirstequation

andcorrelatedwiththecorrespondingerrorterminthecondequation;

•alltheright-handsidevariablesinthefirstequationaredoublyexogenous;thatis,

uncorrelatedwiththefirmspecificeffectsaswellaswiththeerrorterm;

•inspectionisanendogenousvariableinthecondequation;

•inspectionandpollutionareendogenousvariablesinthethirdequation.

hemodelisrecursive,wecan

estimateitequationbyequation.8Here,however,weareinterestedinthethirdequation.

Toeliminatetheindividualeffectswetransformequation(4)intothefollowing:

(5)

itit

ititiitit

eInsp

POSZXcEL

2/1

5

2/1

4

2/1

3

2/1

2

2/1

1

2/12/12/1

−−

−−−−−−

Ω+Ω

+Ω+Ω+Ω+Ω+Ω=Ω

φ

φφφφ

wherevariablesaredefinedasabove,ande

it

isthenewerrorterm,definedasthesumof

thefirmrandomspecificeffects(α

i

)andtheregularerrorterm(u

it

).Thematrixomega

nstructedasfollows:9

8SeeLahiriandSchmidt(1978)forfurtherdetails.

9See,forexample,AhnandSchmidt(1995)fordetails.

13

(6)θ

vv

PQ+=Ω−2/1

with

(7)TllIP

TTNV

/'⊗=

(8)

VNV

PIQ−=

and

(9)

22

2

2

α

σσ

σ

θ

+

=

u

u

Foranyintegerm,letl

m

mpotentmatrixQ

V

transforms

theoriginalvariablesintodeviationsfromindividualmeans,andP

V

transformsoriginal

variablesintoavectorofindividualmeans.

dEstimationResults

(i)Datat

Inordertoperformthisanalysis,aprimarydatatwasrecentlycollectedwith

detailedinformationonveralhundredsindustrialplantsinZhenjiang,coveringthe

1997,thetotalnumberofplantsincludedinoursampleis640.

Ofthe,26%arestateownedenterpris,themajoritybeingcollectively-owned

theplantsinthedatataremediumandsmallenterpris,withonly

4%argeplants,however,accountforapproximately

er

breakdownindicatesthatthetimberprocessing,thefoodprocessingandthepetroleum

processingindustriesreprentthelargestnumberofctorsinourdatatwith17.2%,

15.6%and10.2%oftheplants,respectively.

kets

isthenumberoffirmsonwhichtheentryhasbeencomputed(sincetheinformationwas

notalwaysavailableforallthefirmsinthedatat).Notethatalargeproportionofthe

14

firmsinthedatathavepaidwaterlevies,andtherefore,wasnotcomplyingwithatleast

oneregulatorystandard.

Table1

Waterdischargecharacteristicsin1997

Averagedischarges(kg/year)

TSS(totalsuspendedsolids)47,861

(530)

COD(chemicaloxygendemand)48,591

(626)

Averageconcentration(mg/l)

TSS(totalsuspendedsolids)99

(503)

COD(chemicaloxygendemand)280

(507)

Proportionoffirmspaying

levy

45%

In1997,the640enterprisweretheobjectof5,287inspections,mostofthem

(99.4%)nterpris

werealsotheobjectof78waterrelatedcomplaints,and163airrelatedcomplaints.

Table2providesthemeanandcoefficientofvariationofthevariablesofinterest

marksareufulbeforecommentingthestatisticsofinterest.

First,giventheprenceofmissingobrvations,thenumberofobrvationsudto

,the

coefficientofvariationinsteadofthestandarddeviationhasbeenudasameasureof

dispersiontocomparevariableswithdifferentmeansanddifferentunitsofmeasurement.

Noteworthyarethemeanvaluesofthenumberofinspections,theratiooftotalrefund

tothelevypaidinthepreviousyearaswellastheratiooftotalprofittototal

,thehighestnumber

quitean

rvethatthevariable“refund”isimportantsinceonaverage

15

inthepreviousyear“refund”y,theratiooftotal

profittototalemploymentisonaveragenegativeindicatingthatmostfirmsincurloss.

Notehoweverthatthisaverageismostlikelyaffectedbyoutliers(minimumvalueis–

218andmaximumvaluestandsat41.67).Themedianvalue,whichisabettermeasure

ofcentraltendency,y,notethatthecoefficientofvariation

from29.80%(EL)to6,069.44%(Profemp).Thetypical

variationisbetween100%and1000%.Thereemstobeagreatdifferencein

variationsbetweendischargesusingtotalsuspendedsolids(3,840.85%)andthofor

chemicaloxygendemand(306.01%).Careshouldthusbeexercidwheninterpreting

resultsusingvariableswithgreatervariabilitysincethevariablesmightcontainssome

outliers.

Table2

Meansandcoefficientsofvariationforvariablesofinterestin1997

VariableNamesDefinitionMeanCVin%1

ELWaterlevypaid/waterlevycharged0.956629.80

State1=aplantisastate-ownedenterpri;

0=otherwi

0.3228144.83

Coll1=aplantisacollectively-owned

enterpri;0=otherwi

0.596482.26

Fjv1=aplantisajointventure;

0=otherwi

0.0706362.75

Textile1=textileindustry;0=otherwi0.0189721.16

Chemical1=chemicalindustry;0=otherwi0.0224660.42

Profemp

(profitability)

Totalprofit/totalemployment-0.10566,069.44*

Lref

(refund)

Totalrefundfromthelevyfunddivided

bytotallevypaidin1996

2.2256337.60

Ratwtop

(pollutioncontrol

effort)

Totaloperationcostofwaterpollution

abatementdividedbytotalproduction

operationcost

0.0016418.75

Cmpaccon

(socialimpact)

1=havingenvironmentalaccidents,

environmentalconflictsorcitizen

complaintsonitspollution;0=otherwi

0.1848210.06

Bentss

(TSSviolation)

Levelofdischargesoftotalsuspended

solidswithrespecttothestandard

0.06743,849.85

Bencod

(CODviolation)

Levelofdischargesofchemicaloxygen

demandwithrespecttothestandard

1.5923306.01

Insp(numberof

inspections)

Totalnumberofinspectionstoaplant7.7604127.17

lculatedastheratioofthestandarddeviationtothemean.

“*”indicatestheabsolutevalue.

16

(ii)Estimationresults

Giventheprenceofendogenousvariablesintheequationofinterest,the

generalmethodofmoments(GMM)isanappropriatemethodofestimationtoobtain

,theGMMisappliedto

equation(5).Theinstrumentsweuhereare10

(10)),,,,(ZPSPXPSQXQ

VVVVV

,however,thatinequation(10),thematrix

Xalsocontainsthetimevariableaswellastheconstanttermc.

ultsareconsistentwith

exault

ownershipvariableinthemodelisprivateownership,whichshouldhaveapositive

relationshipwiththeratiooflevypaymentbecauthreeotherformsofownership-

state-owned,collectivelyownedandjointventures,us

indicates,perhapsunexpectedly,thatprivatelyownedenterpris(voluntarilyornot)

havelessbargainingpowerwithrespecttothepaymentofthepollutionlevy.

Profitabilityhasapositiverelationshipwiththelevypaymentratiojustas

ionabatementefforthasa

significant,gativerelationship

indicatesthatacompanywhichhasspentmoreonpollutionabatement(whichmaybean

indicationofgoodwillorgreaterawarenessofenvironmentalandpollutionissues)will

ely,a1%increain

pollutioncontrolbringsabouta0.01%decreainthelevypaymentratio12.

10SeeAhnandSchmidt(1995)forathoroughdiscussiononinstruments.

11NotethatintheXandZmatrices,variablesthatarenotsignificanthavebeeneliminated.

asticityisthecoefficientofthevariableofinteresttimesthemean

ofthevariableanddividedbythemeanofEL.

17

Table3

GMMResultsforequation(5)–Dependentvariable:EL

IndependentVariablesParameter

Estimates

Model1(TSS)

Parameter

Estimates

Model2(COD)

State-0.0607**

(0.013)

-0.0729**

(0.013)

Coll-0.0843***

(0.000)

-0.1195***

(0.000]

Fjv-0.0421*

(0.094)

-0.0581

(0.136)

Textile0.2423***

(0.000)

0.1586***

(0.007)

Chemical0.1159**

(.016)

0.1321***

(0.000)

Profemp

(profitability)

0.0003

(.119)

0.0000

(0.869)

Lref

(refund)

0.0059***

(0.001)

0.0067***

(0.001)

Ratwtop

(pollutioncontroleffort)

-3.8832*

(.057)

-5.5717***

(0.003)

Cmpaccon

(socialimpact)

0.0504**

(0.023)

0.0725**

(0.012)

Bentss

(TSSviolation)

-0.0094*

(.099)

Bencod

(CODviolation)

0.0202*

(0.093)

Insp

(numberofinspections)

-0.0007

(.283)

-0.0033**

(.050)

.14.0825

(0.295)

13.1836

(0.356)

#obrvations382378

Note:(...)erid.

estforthevalidityofover-identifyingrestrictions.(***),(**),and(*)

meanssignificantatthe1%,5%,and10%level,respectively.

Afirmwhichhassufferedenvironmentalaccidents,conflictswithresidentson

environmentalissuesoristheobjectofcitizencomplaintsismorelikelytopayforthe

hichhasreceivedarefundfromthelevyfundsinthe

previousyearappearsmorewillingtopayforthelevychargedinthecurrentyear.A1%

increaindischargesofratiooftotalsuspendedsolidstoitsstandardbringsabouta

decreaoftheorderof0.007%ontrary,a1%increa

18

indischargesofchemicaloxygendemandwithrespecttoitsstandardgivesritoa

0.04%ainedpreviously,bothresultsare

consistentwithexpectationsregardingtheuncertainimpactofpollutiondischargesonthe

y,a1%increainthenumberofinspectionsbrings

abouta0.04%vious

paper,Dasguptaetal.(2001)haveshownthatinspectionsreducepollutiondischargesof

r,resultshereindicatethatagreaterlevelof

ore

inspectionsmayimprovetheenvironmentalperformanceoftheplants,moreinspections

alsoappeartoindicatethattheplantislesswillingtopayforapollutioncharged.

yandconclusion

Therearetwoissuesassociatedwiththeimplementationofanational

environmentalpolicyatthelocallevelsuchasthepollutionlevysysteminChina:

rimarydataba

collectedinZhenjiang,China,thispaperhasanalyzedtheissueofincomplete

enforcement,whichiscaudbytherelativebargainingpoweroftheindustrial

previouspaperswhichhavemainlyfocudontheimpactof

socio-economicandenvironmentalconditions,inthispaperwehaveexaminedmore

precilytheimpactoffirms’characteristics(suchasfinancialstatus,pollutioncontrol

effort,socialimpactofpollutionemission,magnitudeofemissionviolation,aswellas

refundoflevypaidandnumberofinspectionreceivedontheamountoflevypaidrelative

totheamountthatshouldhavebeenpaidifthenationalsystemhadbeenstrictlyapplied.

Withastrongerbargainingpowerinthehandsoftheindustrialctor,weexpectthe

degreeofenforcementtobelower.

hichare

nancialsituation

entailsahigherrelativebargainingpowerandabiggerefforttobargainforlesslevy

whichspentmoreonpollutioncontrolismorelikelytogetwaived,the

19

herthesocialimpactofpollutionemissionsof

aplant,whichhadmorelevy

refundbeforeislesslikelytospendstrongefforttobargainforlesslevypayment.

Finally,thenumberofinspectionsreceivedhasasignificant,negativecorrelationwith

r,conflictingresultsarefoundinthemagnitudeof

emissionviolationbetweentwodifferentpollutants:totalsuspendedsolidsandchemical

ghthesignsofthecorrelationareempiricalissues,thereasonfor

thisdivergenceisnotknown.

Empiricalworkofthenatureperformedherewhichekstoanalyand

comprehendtheactualimplementationofenvironmentalpoliciesstillremainsararityin

especiallythecafordevelopingcountrieswhereverylittleis

igningenvironmentalpoliciesandlegislation

whileignoringhowthewillbeimplementedmayinalllikelihoodleadtotheadoption

ofpolicieswhichmayappeareffective,perhapvencostefficientindesign,butleadto

thispaperprovideafurtherunderstandingof

thedeterminantsoftheimplementationofenvironmentalpoliciesinChina.

20

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