Who Benefits When Firms Game Corrective Policies?

Mathias Reynaert and James Sallee

No 13755, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Firms sometimes comply with externality-correcting policies by gaming the measure that determines policy. This harms consumers by eroding information, but it benefits them when cost savings are passed through into prices. We develop a model that highlights this tension and use it to analyze gaming of automobile carbon emission ratings in the EU. We document startling increases in gaming using novel data. We then analyze the effects of gaming in calibrated simulations. Over a wide range of parameters, we find that pass through substantially outweighs information distortions; on net, consumers benefit from gaming, even when they are fooled by it.

Keywords: Gaming; Corrective taxation; Goodhart's law; Environmental regulation; Carbon emissions; Automobiles; Fuel economy (search for similar items in EconPapers)
JEL-codes: H2 L5 Q5 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Who Benefits When Firms Game Corrective Policies? (2021)
Working Paper: Who Benefits When Firms Game Corrective Policies? (2021)
Working Paper: Who Benefits When Firms Game Corrective Policies? (2019)
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