Can Technology Solve the Principal-Agent Problem? Evidence from China’s War on Air Pollution

By Michael Greenstone, Guojun He, Ruixue Jia, Tong Liu. Social Science Research Network, 2020

287 citations recorded by the source corpus.

We examine the introduction of automatic air pollution monitoring to counter suspected tampering at the local level, a central feature of China’s “war on pollution.” Exploiting 654 regression discontinuity designs based on city-level variation in the day that monitoring was automated, we find an immediate and lasting increase of 35 percent in reported PM10 concentrations post-automation. Moreover, automation’s introduction increased online searches for face masks and air filters, which are strong predictors of purchases. Overall, our findings suggest that the biased and imperfect information prior to automation led to suboptimal investments in defensive measures, plausibly imposing meaningful welfare costs. (JEL D82, O13, P28, Q53, Q55, Q58)

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/bdbbe4eb9d4c1e8436a0514b618670a869e550a5