(De)regulating Information Intermediaries: Theory and Evidence from China's Environmental Impact Assessment Industry

Speaker: Quan Yucheng

Venue: Room 426, Complex Building, School of Economics, Zijingang Campus

Abstract: This research examines the effects of entry deregulation in the information intermediary sector, with a focus on China's Environmental Impact Assessment (EIA) industry. We explore the implications of a market-oriented reform that eliminated entry barriers to the sector and analyze its impacts on EIA report quality, polluting firms, and local residents. Our findings reveal that, although the reform led to a sixfold increase in the number of EIA agencies, it inadvertently resulted in a decline in service quality and EIA participation, ultimately leading to a deterioration in ambient environmental conditions. A model in which entry dilutes each agency's incentive to invest in unobservable quality rationalizes this. Entry deregulation is hazardous where quality is unverifiable and failures fall on third parties.