Government-to-government peer pressure and air pollution: Causal evidence from an environmental ranking policy in China.

• Quantifying the impact of peer pressure on environmental improvements among local governments in China. • Investigating cities ' reaction to declining air quality rankings through regression discontinuity design. • Demonstrating the efficacy of political incentives in combating pollution and the catalytic effect of rankings on policy action. • Assessing the benefits resulting from air pollution reductions using an exposure response function. This paper estimates the impact of peer governmental pressure on air quality using a regression discontinuity design inherent in China's air quality ranking system. Because air quality rankings are important for political evaluations, local officials who witnessed a decline in air quality ranking are motivated to enforce more stringent environmental standards compared to their counterparts with increased rankings. By exploiting this regulatory discontinuity with monthly air quality ranking data from 2012 to 2020 of 169 cities, we find that cities experiencing a lower air quality ranking in the current month compared to the previous month exhibit a subsequent improvement in air quality during the following month, as evidenced by decreased pollutant concentrations. Furthermore, our analysis reveals that in cities where pollutant rankings decline more sharply, officials are less likely to encounter fewer promotion opportunities. Importantly, we observe that the discontinuity in individual pollutant concentrations is not solely influenced by their respective rankings but is also impacted by the overall A ir Q uality I ndex (AQI) ranking. Linking the reduction in air pollutants concentration with the economic benefits, a back-of-the-envelope calculation indicates the decrease in premature deaths due to cardiovascular and respiratory diseases amounts to approximately 200 thousand, resulting in an associated economic saving of more than 600 billion Chinese yuan. [ABSTRACT FROM AUTHOR]