Paradoxical effects of local regulation practices on common resources: evidence from spatial econometrics

This paper innovatively applies a spatial lagged model to investigate the consequences of the devolution of environmental regulation in the absence of knowledge-based, sustainability-oriented nested institutions. Chinese provinces are taken as self-organising social groups sharing a common resource of air quality. The spatial measurement shows that air quality has a positive spatial spillover effect on neighbouring provinces. Due to a tragedy-of-the-commons vicious cycle, however, the estimated direct, indirect and overall spatial spillover effects of the provinces' self-regulation practices on the common resource are all negative. That is, local regulations through investments for waste gas treatment exert paradoxical counter-productive effect on common resource of air quality in the local province and neighbouring provinces. These findings confirm that, in the absence of nested institutions that are based on system-level, sustainability-oriented knowledge management, even commons-protecting actions at individual provincial level may result in jeopardised common resources at the system level.