Chinese Microblogs and Drug Quality∗

This paper examines the impact of the introduction of Sina Weibo, the most popular microblog in China, on the quality of drugs on the market. Using a unique data set on drug quality and Sina Weibo use, I explore the staggered diffusion of Sina Weibo across prefectures. I find that the number of bad drugs is decreasing in Sina Weibo use: if the Sina Weibo use is doubled, the number of bad drugs found will be reduced by 21 percent. Consistent with the prediction of a simple moral-hazard model, I show that the reduction of bad drugs is driven by two mechanisms: Sina Weibo induces more effort from the Drug Administration and it deters the production of bad drugs. Finally, I show that the diffusion of Sina Weibo has a higher marginal effect for disadvantaged groups, consistent with microblogging being a cheap, accessible media. The results suggest that microblogs can play an important role in monitoring both the public and the private sectors, especially in a context with media censorship. JEL code: O1 O2 P26 I11