2.1. Hypotheses
To analyze the impact of the RCP on sustainable development, it is necessary to analyze changes in the objectives, constraints, and incentive systems of relevant subjects of the policy. Therefore, one should understand the institutional background in China. Following reform and opening up, China can be described as having a “regionally decentralized authoritarian system” [
18]. Although the lower-level government may “divert, and resist reforms” of the upper-level government, in general the upper-level government incentive mechanism through personnel and resources is effective, and lower-level governments respond positively to the goals of upper-level governments. Similarly, Zhou [
19] defined this system as an “administrative subcontract.” This government system involves vertical subcontracting and horizontal (political) competition. Under such an institutional framework, the central government formulates economic and social development goals, and local governments compete for the economic development goals of their jurisdictions. These two theories seem to ignore the initiative of local governments. Yang and Yang [
20] pointed out that local governments are motivated to innovate local institutional reforms that actively meet the needs of local economic and social development to obtain political outcomes. In addition, in China’s administrative system, apart from economic decentralization, there are many vertical supervision institutions, which are mainly responsible for environmental protection [
21,
22,
23,
24].
Consequently, China’s economy has achieved a decade of rapid economic growth. However, the importance attached by governments to economic growth can easily have harmful repercussions, such as various environmental problems including water and air pollution. Environmental degradation has become an increasingly unbearable problem for Chinese people, and the upper- and lower-level governments have begun to recognize and address it.
It was in this context that the RCP emerged. The RCP was originally an innovative project of a local government in the face of an adverse environmental event, which is in line with the characterization of local government behavior by Yang and Yang [
20]. In this reading, although economic growth is the core performance of most local governments, the occurrence of negative events can substantially reduce performance. Therefore, the initiative to adopt the river chief system and give the main government leaders responsibility for the water environment can be viewed as a broadly reasonable response to political performance competition in certain situations. The decision by neighboring places to emulate the system thereafter supports this view.
However, when the central government recognizes and fully implements this policy, it means that it has become an external incentive, and the local government responds to it maximally. Although local governments in China can be considered seekers of political outcomes in a broad sense, the endowments and available resources of different local governments are quite different. Therefore, they may have different reactions to the same incentive scheme.
Local governments in China can be regarded as multi-tasking agents. According to the basic ideas of classic literature, such as Holmstrom and Milgrom [
25] and Laffont and Maimort [
26], under the same incentive system, the agent’s optimal effort is based on measurability, risk characteristics, and interrelationships between tasks for optimal allocation of effort, resulting in different output performance. In addition, when the cost function of the agent is private information, there is a problem of adverse selection.
For local governments in China, the core factor of their performance evaluation system is economic growth along with various related indicators, such as fiscal revenue and corporate innovation. When the central government fully implements the river chief system, it endows the local government with more environmental protection responsibilities. These responsibilities are reflected in a “qualified system,” that is, no aggravation of river water pollution, especially no occurrence of serious environmental incidents.
According to the basic idea of the principal–agent model, under this new incentive framework, in general, local governments invest more resources and efforts in projects that can simultaneously promote economic growth and satisfy river water quality. Projects that bring economic growth while harming river water quality are greatly reduced, and projects that are less relevant do not significantly change or face lower investment. In this way, changes in various inputs lead to relative changes in the performance indicators before and after the RCP.
This study examines the performance of the SDGs formulated by the United Nations. This target includes seventeen major items, which are mainly aimed at the national level at the beginning (
https://www.un.org/sustainabledevelopment/, accessed on 9 January 2022). A growing number of studies have applied the SDGs to local-level research and practice [
14,
15,
16,
17]. Based on these studies, and considering the availability of data, this study focuses on eight SDGs. These SDGS aim to end hunger and improve health and well-being, education and lifelong learning, access to drinking water and decent work, and foster industrial innovation and social equality. Their corresponding measurement indicators are shown in
Table 1.
Among the eight SDGs, industrial innovation can simultaneously promote economic growth and ensure water quality. In this regard, there are few differences among local governments with different endowments. Education seems to be able to promote economic growth and ensure water quality simultaneously. However, education is a long-term investment, and the benefits for different regions vary. China’s rapid economic development is accompanied by the migration of people from lower-income regions to higher-income regions. Thus, incentives to achieve both goals by raising educational standards are stronger in high-income areas than in low-income areas.
To reduce water pollution while maintaining economic activity as much as possible, a development orientation relies on consumption and tertiary industry. Consumption depends largely on income; however, the propensity to consume can vary to some extent. Therefore, the government can implement measures to increase the level of consumption to a certain extent. To do this, it is often necessary to allow or take measures to increase income simultaneously, although the increase in wages may increase production costs and reduce economic competitiveness. Considering the combined effect of these two aspects, the adoption of the RCP is expected to significantly increase the level of consumption. Moreover, as there is more room for improvement in the propensity to consume in high-income areas, the RCP is expected to play a more significant role in consumption in high-income areas.
It is difficult for local governments to invest more in the three goals of social equality, health and well-being, and drinking water quality while both maintaining economic growth and maintaining or even improving water quality. Therefore, it can be expected that the adoption of the RCP would not significantly affect these three variables.
Based on the above discussion, the main hypotheses of this study are formulated as follows:
Hypothesis 1 (H1). The adoption of the RCP leads to an increase in overall sustainability.
Hypothesis 2 (H2). The adoption of the RCP increases the level of innovation and education, and the policy effect is more pronounced in high-income areas.
Hypothesis 3 (H3). The adoption of the RCP increases consumption levels, and the policy effect in high-income areas is more pronounced. The adoption of the RCP slightly increases consumption levels, and the policy effect in high-income areas is more pronounced.
Hypothesis 4 (H4). The adoption of the RCP has no significant impact on social equality, health and well-being, or drinking water quality.