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Economic incentive instruments


This World Bank research focuses on regulatory and other approaches for protecting environmental resources and ameliorating pollution problems.

Contact: Hua Wang,


 Research outputs  


Research has been conducted in evaluating the effectiveness of economic incentive instruments. Specifically, the pollution charge policy in China has been quantitatively evaluated and is found to be an effective policy instrument. However, it is suggested that the charge rate should be increased in order to get more benefits from the policy.

Research outputs

"Financial incentives and endogenous enforcement in China's pollution levy system," Hua Wang and David Wheeler, Journal of Environmental Economics and Management 49(1, January): 174-96, 2005. (Based on World Bank Policy Research Working Paper 2336, 2000)

The authors investigate two aspects of China's pollution levy system, which was first implemented about 20 years ago. First, they analyze what determines differences in enforcement of the pollution levy in various urban areas. They find that collection of the otherwise uniform pollution levy is sensitive to differences in economic development and environmental quality. Air and water pollution levies are higher in areas that are heavily polluted. Second, they analyze the impact of pollution charges on industry's environmental performance, in terms of the pollution intensity of process production and the degree of end-of-pipe abatement for both water pollution and air pollution. Econometric analysis shows that plants respond strongly to the levy by either abating air pollution in the production process or providing end-of-pipe treatment for water pollution.

“Equilibrium Pollution and Economic Development in China,” Hua Wang and David Wheeler, Environment and Development Economics 8(3), 2003.

This paper develops and estimates a structural equilibrium pollution model, in which the price and quantity of industrial pollution are jointly determined by the intersection of environmental demand and supply functions. The industrial environmental demand function relates industrial pollution intensity to the local price of pollution, while controlling for characteristics such as sector, scale, and ownership. The local environmental supply function specifies the pollution price imposed by the host community as pollution rises. The model provides a good fit to available data on provincial variations in China s pollution levy, or industrial emissions charge. Our results also suggest that Chinese industry has reduced emissions significantly in response to the levy.

“Pollution Regulation and Abatement Efforts: Evidence from China,” Hua Wang, Ecological Economics 41(1): 85-94, 2002.

This paper empirically tests pollution abatement efforts of Chinese industries in response to pollution regulations, especially the pollution charge instrument practiced in China for about 20 years. The impacts of pollution regulation on abatement expenditures are examined for one thousand large and medium Chinese industrial polluters. The results show that plant-level expenditures on end-of-pipe wastewater treatment are strongly responsive to the pollution charges. The estimated elasticities of operation cost and new investment with respect to pollution price are 65 and 27%, respectively. Other command-and-control regulatory approaches, however, are not found to have systematic and significant impacts on abatement expenditures.

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