Speaker: Mengdi Liu, The University of International Business and Economics

Time: 2024/11/14, 13:30-15:00 (Beijing Time)

Title: When The Eyes Are Closed: Monitoring Failure and Strategic Emissions

Venue: 106 Zhonghui Building

Abstract:

This paper documents the strategic response from polluters towards China’s automated air quality monitoring networks. Automatic environmental monitoring devices are susceptible to temporary outrages due to maintenance or power issues. Using high-frequency, factory-level daily emission data from major industrial polluters in China, we find strong evidence that the SO2 emissions from polluters escalate by 7%-9% on days when nearby air quality monitoring stations fail to report data. The effect lessens with the growing distance between the polluter and the monitoring station. We also find heterogeneous responses among polluters with differing industrial types and firm ownerships, with firms in heavily regulated sectors or non-SOEs more likely to engage in strategic actions. In addition, we test for evidence of interference in monitoring operations by local regulators. Together, the results suggest that under a sequential process with imperfect information, monitoring failures serve as signals that incentivize evasive discharge behavior within the top-down regulatory framework.