Three Essays on Local Governance in China

This dissertation studies local governance in China. Guided by theoretical insights originated from the political economy and public economics literature, I exploit natural experiments and randomized field experiments to provided causal evidence on the role of bureaucratic incentives in the implementation of important public policies. The findings in this dissertation could deepen our understanding of the core incentives and constraints faced by Chinese local bureaucrats, and shed new lights on the design of more effective public policies. In Chapter 1 (coauthored with Guojun He and Bing Zhang), we estimate the effect of environmental regulation on firm productivity using a spatial regression discontinuity design implicit in China’s water quality monitoring system. Because water quality readings are important for political evaluations, and the monitoring stations only capture emissions from their upstream regions, local government officials are incentivized to enforce tighter environmental standards on firms immediately upstream of a monitoring station, rather than those immediately downstream. Exploiting this discontinuity in regulation stringency with novel firm-level geocoded emission and production datasets, we find that upstream polluting firms face a 27% reduction in Total Factor Productivity (TFP), and a 48% reduction in emission intensity, as compared to their downstream counterparts. We find that the discontinuity in TFP does not exist in non-polluting industries, only emerged after the government explicitly linked political promotion to water quality readings, and was entirely driven by prefecture cities with career-driven leaders. Linking the TFP estimate with the emission estimate, a back of the envelope calculation indicates that China’s current water-pollution abatement target leads to an annual economic loss of more than 30 billion dollars. Chapter 2 intends to provide causal evidence on fiscal competition and coordination between local governments. We first introduce a unique empirical setting created by the combination of two national programs in China, the “Rural School Consolidation (RSC)” program and the “Special Economic Zones (SEZs)” program, in which spatially adjacent townships have discontinuous incentives to either compete or coordinate with a neighboring SEZ. Exploiting such quasi-experimental variation with a spatial-discontinuity design, we find a series of empirical evidence on the existence of competition and coordination between local governments, which can be formally rationalized by a simple model where asymmetric jurisdictions compete for mobile labor. Our results suggest that the strategic interactions among local governments play important roles in public goods provision and labor migration: during the RSC program (2001-2011), townships that coordinate with their neighboring SEZs closed an extra 15% of local primary schools, and lost an extra 7% of local population, as compared to townships that compete with their neighboring SEZs. Chapter 3 is joint with Alain de Janvry, Guojun He, Elisabeth Sadoulet, and Qiong Zhang. This paper studies the personnel economics of Chinese grassroots bureaucrats. We notice that subjective performance evaluation is widely used by firms and governments to provide work incentives. However, delegating evaluation power to senior leadership could cause influence activities: agents might devote much efforts to please their supervisors, rather than focusing on productive tasks that benefit their organizations. We conduct a large-scale randomized field experiment among Chinese grassroots state employees and provide the first rigorous empirical evidence on the existence and implications of influence activities. We find that state employees are able to impose evaluator-specific influence to affect evaluation outcomes, and this process could be partly observed by their co-workers. Furthermore, introducing uncertainty in the identity of the evaluator, which discourages evaluator-specific influence activities, can significantly improve the work performance of state employees