Incomplete enforcement of pollution regulation: Bargaining power of Chinese factories

Only a limited number of papers have empirically examined the determinants of the monitoring and enforcement activities performed by the environmental regulator. Moreover, most of these studies have taken place in the context of developed countries. In this paper, we empirically examine the determinants of the enforcement of pollution charges in China. More precisely, we seek to identify the characteristics which may give firms more or less bargaining power with local environmental authorities pertaining to the enforcement (collection) of pollution charges. Firms from the private sector appear to have less bargaining power than state-owned enterprises. Firms facing an adverse financial situation also appear to have more bargaining power. Finally, we also show that the higher the social impact of a firm's emissions (as measured by the presence of complaints), the smaller the bargaining power of the firms with local environmental authorities.