A Simple Rational Expectations Model of the Voltage Effect / Omar Al-Ubaydli, Chien-Yu Lai, John A. List.

Format:

Book

Author/Creator:

Al-Ubaydli, Omar.

Contributor:

National Bureau of Economic Research.

Lai, Chien-Yu.

List, John A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30850.

NBER working paper series no. w30850

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

The "voltage effect" is defined as the tendency for a program's efficacy to change when it is scaled up, which in most cases results in the absolute size of a program's treatment effects to diminish when the program is scaled. Understanding the scaling problem and taking steps to diminish voltage drops are important because if left unaddressed, the scaling problem can weaken the public's faith in science, and it can lead to a misallocation of public resources. There exists a growing literature illustrating the prevalence of the scaling problem, explaining its causes, and proposing countermeasures. This paper adds to the literature by providing a simple model of the scaling problem that is consistent with rational expectations by the key stakeholders. Our model highlights that asymmetric information is a key contributor to the voltage effect.

Notes:

Print version record

January 2023.