Crackdowns in Hierarchies: Evidence from China's Environmental Inspections

Abstract

We investigate how crackdowns on regulatory enforcement dynamically influence firm behavior by linking the timing of centralized dispatch of environmental inspectors to cities in China with high-frequency observations of air pollution at coal power plants. During weeks when inspection teams are located in a city, emissions of a major pollutant, sulfur dioxide (SO2), fall on average by 25-27%, but gradually return to prior levels after teams depart. In contrast to crackdowns that impose low but certain costs, we find that deterrence extends into the initial weeks of post-crackdown periods, and depends on a plant's accountability to central versus local regulators. Allowing citizens to file complaints against polluting plants during crackdowns does not increase long-run effectiveness: high pollution at baseline does not predict complaints, nor do complaints prolong pollution reduction. Our findings suggest that China's environmental inspections may have facilitated information transmission among the state hierarchy, firms, and citizenry without achieving permanent performance improvement.