Changing internal factors are giving rise to new green incentives in China.
China's water quality is suffering from a recent industrial spill. The simple economics of self protection offers a productive approach for studying this issue. Let's return to the classic Ehrlich and Becker 1972 model. In the past, when Chinese officials anticipated that environmental disasters caused by industrial negligence would be suppressed so that the world wouldn't find out about it, such officials had little incentive to regulate industry to engage in costly precautions.
Now that China is growing richer and this means that the value of life and the willingness to pay to avoid risk is rising and with the rise of micro blogging and accountability, officials now know that when disasters take place that government officials will be held accountable. When government environmental officials anticipate ex-post punishment when disasters do take place, they now have strong incentives to do their job ex-ante and to take regulatory actions that reduce the probability that industrial disasters occur in the first place.
This rise of "good" green dynamic incentives is an example of why I am optimistic about China's short term environmental future. Note the two driving mechanisms here. Increased access to information about the consequences of industrial activity and the desire for health and quality of life among China's rising urban class.
Green Cities in China will be a new repeated theme of this blog! Stay tuned.