Information Rents and the Ineffectiveness of Environmental Regulation in China

The fundamental reason for environmental degradation in China is the gap of regulation enforcement. This paper argues that the optimal incentive mechanism under multi-lateral principal-agent relationship depends on organizational structure, it is costly for the principals to deter abuse of authority against the background of supervisory inefficiency, there is no tradeoff between optimal incentive mechanism and discretionary power of supervisors in the presence of abuse of authority, it lies at the heart of policy-making to prevent the discretionary power of supervisors. Abuse of authority is the basis for collusion, prevention of abused authority is the core of ensuring environmental conservation in China.