Who Benefits When Firms Game Corrective Policies?

Mathias Reynaert and James M. Sallee

American Economic Journal: Economic Policy, 2021, vol. 13, issue 1, 372-412

Abstract: Firms sometimes comply with externality-correcting policies by gaming the measure that determines policy. This harms buyers 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, buyers benefit from gaming, even when they are fooled by it.

JEL-codes: H23 L51 L62 Q53 Q54 Q58 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Who Benefits When Firms Game Corrective Policies? (2021)
Working Paper: Who Benefits When Firms Game Corrective Policies? (2019)
Working Paper: Who Benefits When Firms Game Corrective Policies? (2019)
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DOI: 10.1257/pol.20190019

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