Effects of Decentralized Water Regulation on Agriculture in China: A Quasi-Natural Experiment Based on Incentives for Promoting Officials

Abstract

Environmental performance is becoming increasingly essential for promoting local officials in China; thus, their pursuit of promotion may affect agricultural output. This study spatially matched Chinese local official promotion data, regional agricultural output, river-water-quality-monitoring stations, and riverside enterprise discharge data. Based on the difference-in-difference model, the exogenous impact of the natural experiment based on the promotion of officials is quantified as how the promotion behavior of local officials in pursuit of environmental achievements affects agricultural output. This was examined under the decentralization system of China’s environmental governance. The results show that local officials improve agricultural production by controlling environmental pollution through promotion incentives. However, since the central government can observe the regulatory effect of upstream officials through the readings of water monitoring stations, upstream officials strictly enforce the central environmental regulations due to promotion motivation, while downstream officials do not strictly enforce their counterparts. This can result in differentiated impacts on agriculture in upstream and downstream regions. We also carried out a parallel test, placebo test, and measurement error test for the quasi-natural experiment, and the conclusions derived from the analysis remained robust. Our study has important implications for designing compatible environmental governance contracts and incentive policies for promoting agricultural production.