Adverse Selection And Moral Hazard Under The Project System

The project system is an important way for China’s environmental governance.The objectiveness and authenticity of environmental quality information disclosure is the basic guarantee for the effective implementation of environmental protection projects.This paper expands the multi-task principal-agent model to explain the mechanism of adverse selection and moral hazard under the project system.Based on the time-point water quality data of national important water quality automatic monitoring stations from 2015 to 2018,the possible data manipulation phenomena in the publication of water quality information are inferred by McCrary breakpoint test method.Further,through the study of the impact of the water ecological civilization pilot city project and the important drinking water source construction project on the water quality information disclosure data manipulation phenomenon,which with inconsistent water quality objectives,provides empirical evidence for the multidimensional incentive dilemma under the project system.The final breakpoint test results show that there are different degrees of data discontinuity in 144 monitoring stations observed in the period of 2015-2018,including the phenomenon of "underreporting which reduces the pollution level and the phenomenon of overreporting which increases the pollution level.Two typical water environment treatment projects were introduced to explain the problem.It was found that under the condition of asymmetric information,the conflict of objectives and incentive incompatibility under multi-task principal-agent would lead to moral hazard and adverse selection problems,which were manifested in the behavior of "underreporting and "overreporting of local governments.Further empirical tests also found that the acceptance of pilot cities with aquatic ecological civilization will affect the urban sites to "underreport" at the Ⅲ and Ⅳclassification points to achieve the target level and pass the acceptance.The annual audit of important drinking water sources will make the water sources sites tend to overreport" at theⅡ and Ⅲ classification points to not reach the standard and exit.Compared with the existing literature,the possible innovations of this paper are:(1)From the perspective of research,we combine data manipulation with principal-agent crisis under project system,and conduct theoretical analysis and empirical test combined with specific projects.(2)In the past,the research on project system focused on moral hazard.This paper selected two typical water environment treatment projects and explained the moral hazard and adverse selection under the project system with the multi-task principal-agent model.(3)Research methods,this paper uses McCrary breakpoint method to test the public water quality data,and chooses multi-stage DID method to study the impact of two different typical water environment treatment projects on water quality data manipulation,which avoids the endogenous problem better and makes the research results more reliable.