The Economics of Attribute-Based Regulation: Theory and evidence from fuel-economy standards

Koichiro Ito and James Sallee

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This paper analyzes "attribute-based regulations," in which regulatory compliance depends upon some secondary attribute that is not the intended target of the regulation. For example, in many countries, fuel-economy standards mandate that vehicles have a certain fuel economy, but heavier or larger vehicles are allowed to meet a lower standard. Such policies create perverse incentives to distort the attribute upon which compliance depends. We develop a theoretical framework to predict how actors will respond to attribute-based regulations and to characterize the welfare implications of these responses. To test our theoretical predictions, we exploit quasi-experimental variation in Japanese fuel economy regulations, under which fuel-economy targets are downward-sloping step functions of vehicle weight. Our bunching analysis reveals large distortions to vehicle weight induced by the policy. We then leverage panel data on vehicle redesigns to empirically investigate the welfare implications of attribute-basing, including both potential benefits and likely costs.

Pages: 67 pages
Date: 2014-09
New Economics Papers: this item is included in nep-ene, nep-reg and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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https://www.rieti.go.jp/jp/publications/dp/14e057.pdf (application/pdf)

Related works:
Journal Article: The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel Economy Standards (2018)
Working Paper: The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards (2015)
Working Paper: The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:14057

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