Economists often favour market-based mechanisms over non-market based mechanisms to allocate scarce public resources on grounds of economic efficiency and revenue generation. When the usage of the resources in question generates type-dependent negative externalities, the welfare comparison can become ambiguous. Both types of allocation mechanisms are being implemented in China's major cities to distribute limited vehicle licences as a measure to combat worsening traffic congestion and air pollution. While Beijing employs non-transferable lotteries, Shanghai uses an auction system. This article empirically quantifies the welfare consequences of the two mechanisms by taking into account both allocation efficiency and automobile externalities post-allocation. Our analysis shows that different allocation mechanisms lead to dramatic differences in social welfare. Although Beijing's lottery system has a large advantage in reducing automobile externalities over auction, the advantage is offset by the significant allocative cost from misallocation. The lottery system in Beijing resulted in a social welfare loss of 30 billion Yuan (nearly $5 billion) in 2012 alone. A uniform-price auction would have generated nearly 20 billion Yuan to Beijing municipal government, more than covering all its subsidies to the local public transit system.

This paper exploits the universe of credit- and debit-card transactions in China during 2013–2015 and provides the first nationwide analysis of the health care cost of PM2.5 for a developing country. We leverage spatial spillovers of PM2.5 from long-range transport to generate exogenous variation in local pollution, and we employ a flexible distributed lag model to capture semiparametrically the dynamic response of pollution exposure. We find significant impacts of PM2.5 on health care spending in both the short and medium terms. A 10 μg/m3 decrease in PM2.5 would reduce annual health care spending by over $9.2 billion, about 1.5% of China’s annual health care expenditure.

Although entry regulations are ubiquitous across countries, comprehensive evaluations on how such regulations affect firm dynamics and productivity are lacking. We examine a 2012-2014 pilot program in Guangdong (which later became a national policy) that was designed to reduce firm registration costs and encourage entrepreneurial activities. Using administrative data on firms' business registrations and annual reports, our analysis shows that the reform increased firm entry by 25% and firm exit by 8.7% in the manufacturing sector. The productivity of post-reform entrants was 1.1% higher than the productivity of pre-reform entrants, likely due to relaxed financial constraints and more intense competition.

This paper studies the impact of quid pro quo (technology for market access) in facilitating knowledge spillovers and quality upgrading in the Chinese automobile industry. The identification strategy exploits within-product quality variation across a rich set of quality dimensions. We find affiliated domestic automakers adopt more similar quality strengths of their joint venture partners, consistent with knowledge spillovers. Additional analysis suggests worker flows and supplier networks mediate knowledge spillovers. Knowledge spillovers due to ownership affiliation under quid pro quo contributed 8.3 percent of the quality improvement experienced by affiliated domestic models from 2001 to 2014, relative to nonaffiliated domestic models.

In 2013, China launched a landmark program to monitor air quality and disclose real-time data, significantly increasing the public’s access to and awareness of pollution information. The program triggered cascading behavioral changes such as stronger avoidance of outdoor pollution exposure and increased spending on protective products. These behavioral responses mitigated the mortality impact of air pollution. Conservative estimates indicate that the program’s health benefits outweigh the costs by an order of magnitude. The findings highlight the benefits of improving public access to pollution information in developing countries which often experience severe air pollution but lack pollution data collection and dissemination.

We estimate an equilibrium sorting model of housing location and commuting mode choice with endogenous traffic congestion to evaluate urban transportation policies. Leveraging fine-scale data from travel diaries and housing transactions identifying residents' home and work locations, we recover rich preference heterogeneity over both travel mode and residential location decisions. While different policies produce the same congestion reduction, their impacts on social welfare differ drastically. In addition, sorting undermines the congestion reduction under driving restrictions and subway expansion but strengthens it under congestion pricing. The combination of congestion pricing and subway expansion delivers the greatest congestion relief and efficiency gains.