American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Can Technology Solve the Principal-Agent Problem? Evidence from China's War on Air Pollution
American Economic Review: Insights
vol. 4,
no. 1, March 2022
(pp. 54–70)
Abstract
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.Citation
Greenstone, Michael, Guojun He, Ruixue Jia, and Tong Liu. 2022. "Can Technology Solve the Principal-Agent Problem? Evidence from China's War on Air Pollution." American Economic Review: Insights, 4 (1): 54–70. DOI: 10.1257/aeri.20200373Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- P28 Socialist Systems and Transitional Economies: Natural Resources; Energy; Environment
- Q53 Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q55 Environmental Economics: Technological Innovation
- Q58 Environmental Economics: Government Policy