I test the role of economic incentives and command and control in reducing agricultural fires, a major source of air pollution in most rural regions across the world caused by burning crop residues after harvest. To tackle data shortage, I use high-resolution satellite data to construct a fine measure of agricultural fires as well as other geographic characteristics at 1 km × 1 km resolution for China. Using the staggered arrival of biomass power plants, which purchase crop residues as production inputs from nearby areas, as a shock to economic incentives, I find a more than 30% drop in agricultural fires in the vicinity of a plant after its opening relative to areas farther away. Such drop cannot be explained by structural transformation, migration, or enhanced regulation near the plant, and is consistent with an incentive-based explanation. I then examine the effectiveness of a command and control policy that bans agricultural fires within 15 km of airports. Using a spatial regression discontinuity design, I find no evidence that such a policy works. 

Chinese local leaders are frequently moved across prefectures. By combining local leader rotation data and comprehensive firm land parcel purchase data across prefectures from 2006 to 2016, this paper examines how firm-politician connections affect resource allocation and finds that a firm headquartered in a leader's previous work prefecture purchases three times more land parcels in that leader's new governing prefecture than the prefecture-year mean, at half the unit prices. Identification is from within-firm-year variation in various prefectures through exogenous politician rotation. Land usage efficiency is lower for these follower firms' land parcels. Land allocation distortion is also economically sizable. 

We propose a new approach to pollution control from the social contract perspective, which highlights the reciprocal obligations between firms and the government, in contrast to the conventional regulatory view. Combining granular data on Chinese industrial firms with a 2007 reform that sharply increased the government’s incentives for pollution control, we show, in a difference-in-differences framework, that firms with prior government support achieved greater emission reductions than those without following the reform, primarily through costly clean technology adoption and output cuts. These effects are consistent across various strategies that account for the potential endogeneity of government support and appear to be driven by reciprocity between firms and the government, as (a) the effects are more pronounced in regions with stronger norms of reciprocity, and (b) the government, in turn, responded with continued support. Alternative explanations—including government leverage, financial constraints, regulatory enforcement, and political connections—cannot explain our findings. We further examine the aggregate implications of firm-government reciprocity at the city level, exploiting quasi-random variation in city-level support induced by plausibly exogenous mayoral rotation and across-mayor variation in support preferences in an instrumental variable design. We find that such reciprocity translated into significant declines in regional pollution concentrations, thereby enhancing the government’s capacity for pollution control.