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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.

Suggested Citation

  • 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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    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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