A Simple Rational Expectations Model of the Voltage Effect

Omar Al-Ubaydli, Chien-Yu Lai and John List

No 30850, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: C93 D61 D90 (search for similar items in EconPapers)
Date: 2023-01
Note: EEE PE POL
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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Working Paper: A SIMPLE RATIONAL EXPECTATIONS MODEL OF THE VOLTAGE EFFECT (2023)
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