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

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  • Michael Greenstone
  • Guojun He
  • Ruixue Jia
  • Tong Liu

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.

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  • Michael Greenstone & Guojun He & Ruixue Jia & Tong Liu, 2022. "Can Technology Solve the Principal-Agent Problem? Evidence from China's War on Air Pollution," American Economic Review: Insights, American Economic Association, vol. 4(1), pages 54-70, March.
    • Handle: RePEc:aea:aerins:v:4:y:2022:i:1:p:54-70
    DOI: 10.1257/aeri.20200373
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    Cited by:

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    3. Chen, Xiaoguang & Chen, Luoye & Xie, Wei & Mueller, Nathaniel D. & Davis, Steven J., 2023. "Flight delays due to air pollution in China," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    4. Agarwal, Sumit & Han, Yajie & Qin, Yu & Zhu, Hongjia, 2023. "Disguised pollution: Industrial activities in the dark," Journal of Public Economics, Elsevier, vol. 223(C).
    5. Taipeng LI & Lorenzo Trimarchi & Rui XIE & Guohao YANG, 2023. "The Unintended Consequences of Trade Protection on the Environment," Working Papers ECARES 2023-16, ULB -- Universite Libre de Bruxelles.
    6. Daniel Bjorkegren & Joshua E. Blumenstock & Samsun Knight, 2020. "Manipulation-Proof Machine Learning," Papers 2004.03865, arXiv.org.
    7. Sébastien Marchand & Damien Cubizol & Elda Nasho Ah-Pine & Huanxiu Guo, 2023. "Policy change, mass media and air quality in China: new paths to face air pollution?," Working Papers hal-03448375, HAL.
    8. Dong, Yan & Tian, Jinhuan & Wen, Qiang, 2022. "Environmental regulation and outward foreign direct investment: Evidence from China," China Economic Review, Elsevier, vol. 76(C).
    9. Huang, Linyuan & Xie, Rui & Yang, Guohao, 2022. "The impact of lockdown on air pollution: Evidence from an instrument," China Economic Review, Elsevier, vol. 71(C).
    10. Li, Xue & Smyth, Russell & Yao, Yao, 2023. "Extreme temperatures and out-of-pocket medical expenditure: Evidence from China," China Economic Review, Elsevier, vol. 77(C).
    11. Cheng, Yuhong & Ma, Ben & Sun, Yidan, 2023. "Does central ecological transfer payment enhance local environmental performance? Quasi-experimental evidence from China," Ecological Economics, Elsevier, vol. 212(C).
    12. Xinming Du, 2023. "Symptom or Culprit? Social Media, Air Pollution, and Violence," CESifo Working Paper Series 10296, CESifo.
    13. Yingfei Mu & Edward A. Rubin & Eric Zou, 2021. "What’s Missing in Environmental (Self-)Monitoring: Evidence from Strategic Shutdowns of Pollution Monitors," NBER Working Papers 28735, National Bureau of Economic Research, Inc.
    14. Cao, Jing & Ma, Rong, 2023. "Mitigating agricultural fires with carrot or stick? Evidence from China," Journal of Development Economics, Elsevier, vol. 165(C).
    15. Shi, Xinzheng & Zhang, Ming-ang, 2023. "Waste import and air pollution: Evidence from China's waste import ban," Journal of Environmental Economics and Management, Elsevier, vol. 120(C).
    16. Alexandre, Fernando & Chaves, Miguel & Portela, Miguel, 2022. "Investment Grants and Firms' Productivity: How Effective Is a Grant Booster Shot?," IZA Discussion Papers 15779, Institute of Labor Economics (IZA).
    17. Yuan, Huaxi & Zou, Longhui & Feng, Yidai, 2023. "How to achieve emission reduction without hindering economic growth? The role of judicial quality," Ecological Economics, Elsevier, vol. 209(C).
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    19. Panle Jia Barwick & Shanjun Li & Liguo Lin & Eric Zou, 2019. "From Fog to Smog: the Value of Pollution Information," NBER Working Papers 26541, National Bureau of Economic Research, Inc.
    20. Kong, Dongmin & Liang, Junwei & Liu, Chenhao, 2022. "Invisible enemy: The health impact of ozone," China Economic Review, Elsevier, vol. 72(C).

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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