Combating cross-border externalities: Evidence from China’s inter-provincial ecological compensation initiatives
研究中国新安江跨省生态补偿政策，发现其显著减少上游企业排污，同时导致企业退出增多、新进入减少；成本收益分析表明上下游省份和中央政府均受益，支持该政策的长期可行性。
We examine China’s Ecological Compensation Initiative (ECI), which facilitates cross-provincial payments to reduce pollution in the Xin’an River. Using firm-level data, we find the policy significantly reduced upstream emissions, especially among firms closer to the river’s boundary. The ECI also increased firm exits and reduced new entries. A cost-benefit analysis shows that both upstream and downstream provinces benefited, as did the central government, supporting the ECI’s long-term feasibility and durability. Evidence from similar later programs highlights the ECI’s broader relevance, suggesting that well-designed compensation schemes can effectively address cross-jurisdictional environmental externalities.