Can Technology Solve the Principal-Agent Problem? Evidence from China's War on Air Pollution
American Economic Review: Insights
no. 1, March 2022
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.
Greenstone, Michael, Guojun He, Ruixue Jia, and Tong Liu.
"Can Technology Solve the Principal-Agent Problem? Evidence from China's War on Air Pollution."
American Economic Review: Insights,
Asymmetric and Private Information; Mechanism Design
Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Socialist Systems and Transitional Economies: Natural Resources; Energy; Environment
Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Environmental Economics: Technological Innovation
Environmental Economics: Government Policy