Strategic interaction of environmental regulation and its influencing mechanism: Evidence of spatial effects among Chinese cities

Abstract

China's central government has invested great effort into environmental protection, but the country's environmental problem remains serious. One important reason is that environmental regulations have been implemented incompletely. Hence, this paper analyzes the incomplete implementation of environmental regulation in China from the perspective of enforcement interaction among prefecture-level cites. Comparing to the existing literature, a game theory model of environmental regulation between local leaders is first built based on tournament competition, then spatial spillover effects and its influencing mechanism are further analyzed with empirical evidence. Empirical results show that strategic interaction of environmental regulation is evident among central and western cities in China, supportive of an overall ‘race to the bottom’ competition. Spatial border effect and spatial economic effect of strategic interaction are found to exist mainly for cities within the same province, and spatial economic effect is found to be dominant. Cities with younger leaders are more affected by spatial effects. But two factors, environmental one-vote-veto system, and public environmental participation, are helpful in terms of altering city leaders' behavior and alleviating the enforcement interaction of environmental regulation, thus improving the incomplete implementation of environmental regulation to an extent. The findings indicate that central government should pay attention to environmental incentives for local governments and encourage more public environmental participation.