Regulation or Property Rights: The Effect of China’s Coal Mine Shutdown Policy on Work Safety*

Bai Chongen, Wang Xin  and Zhong Xiaohan
School of Economics and Management, Tsinghua University, Beijing, China

 
Abstract: Since 1999, shutdown policy has been one of the most important industrial policies in China’s coal mining industry. There have been many controversies surrounding this policy and its effect on coal mine safety. This paper summarizes, analyzes and tests two contradicting views of the effects of shutdown policy on the mortality rate of township-and-village-owned coal mines. One view, or the regulative view, believes that shutdown policy induces firms to increase safety input, thus decreasing mortality. The opposing view, or the property rights view, argues that shutdown policy disturbs property rights stability and actually increases mortality. We built a simple theoretical model to analyze these contrasting rationales. The model uses the difference-in-difference method and provincial panel data from 1995 to 2005 to empirically test the policy’s effects. Our findings are that shutdown policy significantly decreases output while also increasing mortality in township-and-village coal mines. This result is consistent with the property rights view.
Key words: regulation, property rights, shutdown policy, coal mine safety, difference in-difference

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