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Economic loss and environmental gain from regulation: examining the two-fold effect using data from Chinese cities

Abstract

Environmental regulations can have a two-fold effect on the economy and environment. Output lost due to environmental regulation has been extensively examined in the literature; however, studies on the consequent environmental benefits are scarce. This study models the dual regulatory effect of environmental regulation on the economy and environment using a non-parametric data envelopment analysis framework. An analogous environmental regulatory efficiency index that accounts for both effects is presented. A dataset covering 104 Chinese prefecture cities in 2008 is employed for illustration. The efficiency index is estimated and compared among three regions of China. Moreover, the positive nexus between regulatory GDP cost and CO2 abatement is empirically examined and confirmed. When setting regulatory policies, this index can help policymakers quantify the trade-offs between environmental benefits and economic costs.

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Abbreviations

DEA:

Data envelopment analysis

RECI:

Regulatory economic cost index

REGI:

Regulatory environmental gain index

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Acknowledgements

I thank for Henk Folmer’s comment at the early stage. This research was financially supported by the National Science Foundation of China (71622014, 41771564) and the research funding of Renmin University of China (21XNL020).

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Correspondence to Chu Wei.

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Wei, C. Economic loss and environmental gain from regulation: examining the two-fold effect using data from Chinese cities. Lett Spat Resour Sci (2021). https://doi.org/10.1007/s12076-021-00274-5

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Keywords

  • Regulatory economic cost
  • Environmental gain
  • Weak disposability
  • Free disposability
  • Regulated technology
  • Unregulated technology

JEL code

  • O44
  • Q51
  • C61