Who benefits when firms game corrective policies?

Firms sometimes comply with externality-correcting policies by gaming the measure that determines policy. We show theoretically that such gaming can benefit consumers, even when it induces them to make mistakes, because gaming leads to lower prices by reducing costs. We use our insights to quantify the welfare effect of gaming in fuel-consumption ratings for automobiles, which we show increased sharply following aggressive policy reforms. We estimate a structural model of the car market and derive empirical analogs of the price effects and choice distortions identified by theory. We find that price effects outweigh distortions; on net, consumers benefit from gaming

Who benefits when firms game corrective policies?

Firms sometimes comply with externality-correcting policies by gaming the measure that determines policy. We show theoretically that such gaming can benefit consumers, even when it induces them to make mistakes, because gaming leads to lower prices by reducing costs. We use our insights to quantify the welfare effect of gaming in fuel-consumption ratings for automobiles, which we show increased sharply following aggressive policy reforms. We estimate a structural model of the car market and derive empirical analogs of the price effects and choice distortions identified by theory. We find that price effects outweigh distortions; on net, consumers benefit from gaming

Consumer Valuation of Fuel Costs and the Effectiveness of Tax Policy - Evidence from the European Car Market

To what extent do car buyers undervalue future fuel costs, and what does this imply for the effectiveness and welfare impact of alternative tax policies' To address both questions, we show it is crucial to account for consumer heterogeneity in mileage and other dimensions. We use detailed product-level data for a long panel of European countries, and exploit variation in fuel costs by engine type. Although we find there is modest undervaluation of fuel costs, fuel taxes are still more effective in reducing fuel usage than product taxes based on fuel economy. Importantly, fuel taxes also perform better in terms of total welfare even when usage demand is held completely fixed. The reason is that fuel taxes better target the right consumers, those with a high mileage, to purchase more fuel efficient cars

Consumer Valuation of Fuel Costs and the Effectiveness of Tax Policy - Evidence from the European Car Market

To what extent do car buyers undervalue future fuel costs, and what does this imply for tax policy? To address both questions, we show it is crucial to account for consumer mileage heterogeneity. We use product-level data for a panel of European countries and exploit fuel cost variation by engine. Despite a modest undervaluation of fuel costs, fuel taxes are more effective in reducing fuel usage than product taxes. They also perform better in terms of welfare, even when usage demand is held fixed. The reason is that fuel taxes better target high mileage consumers to purchase fuel efficient cars

The Environmental Impacts of Protected Area Policy

The world has pledged to protect 30 percent of its land and waters by 2030 to halt the rapid deterioration of critical ecosystems. We summarize the state of knowledge about the impacts of protected area policies, with a focus on deforestation and vegetation cover. We discuss critical issues around data and measurement, identify the most commonly-used empirical methods, and summarize empirical evidence across multiple regions of the world. In most cases, protection has had at most a modest impact on forest cover, with stronger effects in areas that face pressure of economic development. We then identify several open areas for research to advance our understanding of the effectiveness of protected area policies: the use of promising recent econometric advancements, shifting focus to direct measures of biodiversity, filling the knowledge gap on the effect of protected area policy in advanced economies, investigating the long-run impacts of protection, and understanding its equilibrium effects

Colluding against environmental regulation

We study collusion among rms in response to imperfectly monitored environmental regulation. Firms improve market prots by shading pollution and evade noncompliance penalties by shading jointly. We quantify the welfare eects of alleged collusion among three German automakers to reduce the size of diesel exhaust uid (DEF) tanks, an emission control technology used to comply with air pollution standards. We develop a structural model of the European automobile industry (2007-2018), where smaller DEF tanks create more pollution damages, but improve buyer and producer surplus by freeing up valuable trunk space and reducing production costs. We nd that choosing small DEF tanks jointly reduced the automakers' expected noncompliance penalties by at least 560 million euros. Antitrust and noncompliance penalties would reach between 1.46 and 14.63 billion euros to remedy the welfare damages of the alleged collusion

Colluding against environmental regulation

We study collusion among rms in response to imperfectly monitored environmental regulation. Firms improve market prots by shading pollution and evade noncompliance penalties by shading jointly. We quantify the welfare eects of alleged collusion among three German automakers to reduce the size of diesel exhaust uid (DEF) tanks, an emission control technology used to comply with air pollution standards. We develop a structural model of the European automobile industry (2007-2018), where smaller DEF tanks create more pollution damages, but improve buyer and producer surplus by freeing up valuable trunk space and reducing production costs. We nd that choosing small DEF tanks jointly reduced the automakers' expected noncompliance penalties by at least 560 million euros. Antitrust and noncompliance penalties would reach between 1.46 and 14.63 billion euros to remedy the welfare damages of the alleged collusion

Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market

Emission standards are one of the major policy tools to reduce greenhouse gas emissions from transportation. The welfare effects from this type of regulation depend on how firms choose to abate emissions: by changing relative prices, by downsizing their feet or by adopting technology. This paper studies the response of firms to a new emission standard in the European car market using panel data covering 1998- 2011. The data show that firms choose to comply with the regulation by adopting new technology. To evaluate the welfare effects of the regulation I estimate a structural model using data from before the policy announcement and explicitly test the ability of the model to explain the observed responses. I find that, because the abatement is done by technology adoption, consumer welfare increases and overall welfare effects depend on market failures in the technology market. The design of the regulation matters to induce technology adoption

An economic analysis of environmental policy in the European car market

status: publishe

Abatement strategies and the cost of environmental regulation: emission standards on the European car market

This paper studies the introduction of an EU-wide emission standard on the automobile market. Using panel data from 1998-2011, I find that firms decreased emission ratings by 14%. Firms use technology adoption and gaming of emission tests to decrease emissions, rather than shifting the sales mix or downsizing. I find that the standard missed its emission target, and from estimating a structural model, I find that the standard was not welfare improving. The political environment in the EU shaped the design and weak enforcement and resulted in firms’ choices for abatement by technology adoption and gaming