Organizing regulatory structure and local air quality: Evidence from the environmental vertical management reform in China

The effectiveness of environmental policies is often compromised by weak enforcement due to conflicts between local and national interests. We examine a novel institutional reform in China that centralizes the management authority of grassroots environmental bureaus to address the issue of local capture. By analyzing the staggered roll-out of this reform, we find that the Air Quality Index significantly decreased by 25.1%. We attribute this improvement to a reduction in the capture of front-line environmental regulators by local interest groups, alignment of interests between local regulators and their upper-level administrators, and increased efforts for environmental protection by local governments in a more independent and impartial regulatory environment. These results highlight the effectiveness of distributing management authority to different administrative levels, as it reshapes the incentives for local environmental regulators, strengthens enforcement efficiency, and facilitates the achievement of policy objectives.