Principal investigator: Omar Barroso Khodr
Authors: Yuhao Ba
Original title: The more expertise the better? Examining the impact of policy venue specialization on environmental policy compliance
Location of the Intervention: China
Sample Size: 3.792 signatures
Primary Variable of Interest: Misconduct. Indicating the number of reported cases of corporate environmental misconduct committed by company i in year t+1.
Type of Intervention: Environmental policies
Methodology: Linear Regression; Ordinary Least Squares (OLS); Difference-in-Differences (DID); Fixed Effects.
Summary
Ba (2026) investigates how the specialization of public policy bodies—agencies created for specific domains with a high degree of technical expertise—affects compliance with environmental policies. Based on a recent institutional reform in China, which established municipal environmental courts, we adopted a difference-in-differences model with multiple time periods to assess the impact of these bodies on environmental infractions committed by local companies.
The results show that these instances significantly reduce violations, with more pronounced effects among larger companies and those in less polluting sectors. Mechanism analyses indicate that increased business innovation—rather than increased government oversight—explains the improvements in compliance, clarifying the causal pathways of institutional specialization.
By connecting institutional design to compliance outcomes, we move beyond the predominantly procedural focus in the literature and show how specialized institutions impact governance. The study also offers new insights into the capabilities and effects of judicial bodies, complementing previous research focused on the Executive, the Legislative, or hybrid models.
- Policy Problem
According to Ba (2026), there is a central gap in the literature on polycentric governance: the scarcity of empirical evidence linking the creation of specialized public policy instances to concrete compliance outcomes. Although previous studies have focused on the interaction processes between actors and institutional complexity, few have advanced in the causal evaluation of the effects of these instances on the behavior of regulated agents. This article addresses this gap by investigating how the specialization of judicial instances—in this case, municipal environmental courts in China—impacts companies' compliance with environmental policies.
As Ba points out, from a public policy perspective, the study shows that institutional specialization can be an effective instrument for improving regulatory compliance, provided it is properly designed. The results show that environmental courts significantly reduced infractions committed by local companies, with more intense effects among larger firms and those in less polluting sectors. This finding suggests that the effectiveness of specialization is not uniform, but conditioned by the organizational characteristics of the regulated agents—which calls for caution when generalizing this type of reform without considering sectoral heterogeneities and institutional capacity.
In this context, another important advance of the study lies in the identification of explanatory mechanisms. By testing two approaches—greater government attention and increased green innovation in companies—the authors conclude that only the second finds empirical support. This indicates that judicial specialization does not act so much by reinforcing state oversight, but rather by stimulating behavioral changes in regulated agents, who then invest more in innovation to adapt to new requirements. This discovery redirects the focus of policies: instead of simply expanding the control apparatus, governments can obtain better results by creating institutions that induce internal transformations in the target organizations.
Finally, the study fills an important gap by analyzing judicial instances—traditionally neglected in the literature on polycentric governance, which prioritizes executive and legislative bodies and collaborative arrangements. By demonstrating that specialized courts can produce concrete effects on the behavior of private agents, the article expands the repertoire of institutional solutions available to policymakers. Furthermore, by adopting an empirical strategy with a quasi-experimental design, the research raises the standard of evidence on the subject, offering more robust support for the design of results-oriented institutional reforms.
- Policy Implementation Context
According to the author, the literature on polycentric governance recognizes that instances of public policy operate in complex and multifaceted systems, with multiple overlapping forums that facilitate cooperation and learning among diverse actors. Existing studies have focused on the reasons for this multiplicity—whether by deliberate choice or due to limitations in the capacity of policymakers—and on its impacts on policy change, agenda setting, and institutional interdependencies.
Ba points out that more recently, attention has turned to the deliberate creation of specialized bodies that consolidate expertise and decision-making authority in specific domains, often in response to complex socio-technical challenges. The literature identifies two mechanisms for this specialization: one of a permanent nature, driven by top-down institutional reforms, and another of a temporary nature, driven by political entrepreneurs. In both, cooperation between public and private actors is central.
However, Ba points out that despite these advances, significant gaps persist. First, the effects of specialization of instances on policy implementation and compliance remain under-examined, although there is a growing demand for evidence to guide institutional design. Second, judicial instances are neglected in the literature, which privileges executive and legislative bodies and collaborative arrangements as policy forums—even though courts possess distinctive attributes (binding authority, stable precedents, and legitimacy based on impartiality) that radically differentiate them from consultative and transitional forums. Third, most studies rely on correlational designs or case studies, lacking robust causal identification.
Thus, it is precisely to these gaps that Ba's (2026) study responds: by evaluating the impact of the creation of specialized environmental tribunals on corporate compliance, using an empirical design focused on causal inference, the research contributes concrete evidence on how the specialization of instances — especially judicial ones — can affect governance outcomes, filling a critical gap between institutional theory and public policy evaluation.
- Evaluation Details
Ba's (2026) empirical assessment uses data from companies listed on China's 'A' market (2007–2022), combining financial information from the CSMAR database, environmental violation records from CCERTM, and manually collected data on the creation of environmental tribunals. After standard adjustments (winsorization, deflation, and exclusion of special treatment and financial companies), the final sample comprises 3.792 firms.
In this way, the choice of environmental infractions as an indicator of compliance is justified for two reasons. First, they capture violations that have actually been verified (e.g., excessive emissions, refusal to undergo inspections), constituting an objective and conservative measure of non-compliance—especially relevant in a context with scarce data on voluntary compliance.
The author acknowledges the potential bias toward increased litigation, but argues that, by recording proven infractions rather than lawsuits, the variations reflect real changes in behavior. Second, in the Chinese context, greater compliance is associated with concrete environmental benefits, making infractions a reliable proxy for governance effectiveness.
Methodologically, the study adopts differences-in-differences across multiple periods, complemented by propensity score matching and placebo tests. This strategy isolates the causal effect of institutional specialization, controlling for observable and unobservable confounding factors. The combination of longitudinal data at the municipal and firm levels, with temporal and geographic variation in the implementation of the courts, lends credibility to the causal inferences—a significant advance compared to the predominance of correlational studies in the field.
- Method
To assess the impact of the creation of environmental tribunals on infractions committed by companies, the study adopts a difference-in-differences (DID) model with multiple periods. This approach is widely used to isolate causal policy effects, as it controls for both fixed differences between groups and unobservable temporal trends, minimizing biases arising from individual heterogeneity.
The treatment variable indicates whether the company is located in a city that established an environmental court in a given year. The outcome analyzed is the number of environmental violations reported in the year following implementation, with a time lag to allow for the effects of the policy and behavioral responses to manifest—and also to reduce concerns about contemporary reporting dynamics.
Thus, the model incorporates a set of firm-level controls that can influence the propensity for violations independently of the creation of courts: firm size and age, financial indicators (leverage, market value, and return on assets), governance structure (ownership concentration and board size), and presence of state capital. These controls capture differences in financial capacity, reputational incentives, and internal monitoring. Furthermore, the model includes fixed effects for firm, industry, city, and year, absorbing time-invariant characteristics, persistent sectoral differences, local particularities (such as regulatory capacity), and common macroeconomic shocks.
Finally, to investigate the underlying mechanisms, the study estimates weak relationships between the creation of the tribunals and two intermediate variables: (i) government attention to environmental issues at the municipal level and (ii) companies' green innovation efforts. These analyses do not constitute formal causal mediation, but they verify whether the observed effects on compliance operate through these pathways, testing the proposed hypotheses about how institutional specialization impacts company behavior.
- Main results
The main results show that the creation of environmental courts significantly reduced infractions committed by companies. In the model with controls, the estimated coefficient was -0,0852, indicating that, on average, firms located in cities with courts presented fewer cases of infraction compared to the control group. This effect supports the hypothesis that the specialization of judicial instances improves compliance with environmental policies.
Robustness tests confirm the validity of the findings. Event analysis shows that there are no significant differences between the groups in the periods prior to the implementation of the courts, validating the assumption of parallel trends. The results remain negative and stable after propensity score matching, in placebo tests with random treatment assignments, and in alternative specifications that consider the excess-zero counting nature of the infraction data.
In this context, heterogeneity analyses reveal that the effect is not uniform. The impact is significant only for larger companies, probably because these are more subject to public and governmental scrutiny and maintain closer ties with the State. Regarding the sector of activity, the inhibiting effect is concentrated in firms from non-highly polluting sectors, suggesting that companies in polluting sectors face higher compliance costs and stronger incentives for non-compliance, which may diminish the effectiveness of the courts.
Finally, the study investigated whether the effect could be explained by increased government attention to environmental issues. Although there was an increase in the mention of environmental themes in the target sections of municipal reports, this increase did not translate into more concrete or action-oriented attention. Thus, the author found limited support for the hypothesis that specialization acts through increased government attention, suggesting that other mechanisms—such as increased green innovation by companies—are more relevant to explaining the improvement in compliance.
- Lessons in Public Policy
Ba's study (2026) offers important lessons for public policy design, especially with regard to the creation of specialized institutions as a strategy to improve regulatory compliance.
Firstly, the creation of environmental tribunals has significantly reduced infractions committed by companies, demonstrating that institutions with concentrated expertise and authority in specific domains can generate concrete governance results. For policymakers, this suggests that investing in institutional design driven by technical knowledge is a promising way to strengthen regulatory effectiveness, especially in complex areas such as the environment.
Secondly, the benefits of specialization are more pronounced among larger companies and those in less polluting sectors. This indicates that uniform policies can have unequal impacts, and that enforcement and compliance strategies need to be adapted to the organizational and sectoral characteristics of the regulated entities. In highly polluting sectors, where incentives for non-compliance are greater and compliance costs higher, isolated institutional specialization may be insufficient, requiring complementary instruments.
Subsequently, the study shows that improved compliance is not so much due to increased government attention, but rather to the encouragement of green innovation by companies. This redirects the focus of policies: instead of simply expanding oversight, governments can achieve better results by creating institutions that induce internal transformations in regulated entities, encouraging investment in cleaner technologies.
Next, by including courts in the repertoire of public policy instances, the study broadens the range of available institutional options. Unlike collaborative forums or executive bodies, judicial instances offer binding authority, stability through precedents, and legitimacy based on impartiality—attributes that make them particularly useful in contexts where conventional governance channels are weak or ineffective.
In this context, although the study is conducted in China—an authoritarian regime with its own institutional characteristics—the authors argue that the creation of expertise-driven institutions is not a phenomenon restricted to this context, but part of a global trend in response to increasingly complex and knowledge-intensive challenges. The demonstrated effectiveness suggests that, even in adverse political environments, institutional design based on expertise can produce governance gains.
Finally, the study points out that regulated agents will need to adapt to more niche and specialized regulatory environments, while environmental advocacy groups may find alternative channels in these instances when conventional forums prove ineffective. For future research, it is recommended to investigate interactions between multiple instances in polycentric systems, test the generalizability of the findings to other policy areas, and explore additional mechanisms such as coercive authority and institutional independence.
