Superior administration’s environmental inspections and local polluters’ rent seeking: A perspective of multilevel principal–agent relationships

Abstract

The multilevel agency problems facilitate rent-seeking in local environmental affairs. However, research related to multilevel environmental governance in developing countries is still limited. This paper uses the excess management expenses as the proxy variable for rent-seeking to investigate the correlation between the superior administration’s environmental inspections and the local polluters’ rent-seeking, based on a quasi-natural experiment during 2011–2019 involving environmental inspections conducted by China’s central government. The main results show that superior inspections significantly reduce the excess management expenses of polluting companies. The mechanism analysis indicates that public concerns and corporate bargaining power have positive moderating effects on the implementation of superior inspections. Further results demonstrate that superior inspections are more significant in private enterprises and have improved corporate environmental performance. These findings provide empirical support and policy implications for improving multilevel governance in local environmental issues.