State ownership and cost‐effectiveness of environmental policies: Firm‐level evidence

Abstract We employ Chinese firm‐level data to examine the interconnections among firm ownership, environmental regulation, and non‐environmental economic policies. We find that there are substantial differences between state‐owned enterprises (SOEs) and privately‐owned enterprises (POEs) in their responses to government anti‐pollution mandates. SOEs reduced emissions more than POEs, with the former relying mainly on abatement investment and the latter on reducing outputs. An average POE's marginal abatement cost is more than nine times that of an average SOE, suggesting significant inefficiencies in policy implementation. Policies liberalizing financial markets could affect POEs' abatement costs and improve the cost‐effectiveness of environmental policies.