China Policy Journal Volume 1, Number 1, Fall 2018 | Page 145

China Policy Journal
The existing literature on polluting
behavior at plant level mainly focuses
on the economic and institutional
aspects of the firms, assuming polluting
firms are rational agents and they make
decisions by calculating the expected
costs of compliance and the expected
penalties for noncompliance. If the
former exceeds the latter, an individual
firm will be more likely to choose noncompliance.
Weak laws and/or law enforcement
could result in low expected
penalties and, therefore, a high probability
of noncompliance by firms.
Many studies on environmental
compliance and enforcement, including
those concentrating on China, adopt
this approach and they tend to focus on
the formal rules and the mechanisms
for implementing them. On the government’s
part, considerable academic
attention has been given to explaining
the “enforcement gaps”; these are mainly
caused by high costs, limited budgets,
shortages of personnel and necessary
expertise, and a variety of institutional
problems (Arguedas 2008; Blackman
and Harrington 2000; McAllister et al.
2010; Pan, Wang, and Wang 2005; Russell
and Vaughan 2003). On the regulatees’
part, existing literature suggests
that polluting firms’ behavior is mainly
shaped by environmental laws and policies
and, more importantly, by their enforcement,
as polluting firms are driven
by utility maximization rationales and
their managers make decisions based
on comparing various costs and benefits
(Xu 2011).
Another strand of scholarship
has proved that neither formal nor informal
enforcement mechanisms can
alone ensure consistent compliance.
Empirical evidence from both industrialized
and developing countries suggests
that effective government regulation
and law enforcement and public
participation are mutually supportive
(Gunningham 2009; Thornton, Gunningham,
and Kagan 2005).
A third strand of literature suggests
that noncompliance with environmental
regulations is a consequence
of comprehensive factors that include
not only the incentives and sanctions
created by the formal regulations, but
also by a variety of determinants such
as the design of policy instruments, the
political consensus on law enforcement
intensity, the degree of heterogeneity
and the capacity of regulatees, and the
pressures from private intervention
(Pargal et al. 1997; Weaver 2014). Specialized
literature on environmental
regulation and compliance in China
also suggests that corporate compliance
behavior can be affected by informal
mechanisms such as the political
connections (of the polluting firms),
features of ownership, general developmental
modes, and public monitoring
and participation (Van Rooij 2010;
Wang et al. 2003, 2008; Xie, Yuan, and
Huang 2017).
Building upon the above literature,
this study will explore how the formal
and informal factors work together
to affect the rational polluting behaviors
of different firms and how various
factors determine the effectiveness and
efficiency of China’s environmental regulatory
activities. Formal factors main-
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