Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards

Soren Anderson and James Sallee

American Economic Review, 2011, vol. 101, issue 4, 1375-1409

Abstract: Estimating the cost of regulation is difficult. Firms sometimes reveal costs indirectly, however, when they exploit loopholes to avoid regulation. We apply this insight to fuel economy standards for automobiles. These standards feature a loophole that gives automakers a bonus when they equip a vehicle with flexible-fuel capacity. Profitmaximizing automakers will equate the marginal cost of compliance using the loophole, which is observable, with the unobservable costs of strategies that genuinely improve fuel economy. Based on this insight, we estimate that tightening standards by one mile per gallon would have cost automakers just $9-$27 per vehicle in recent years. (JEL L51, L62, Q48)

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (82)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.4.1375 (application/pdf)
http://www.aeaweb.org/aer/data/june2011/20090238_data.zip dataset accompanying article (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:101:y:2011:i:4:p:1375-1409

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().