Colluding Against Environmental Regulation

Mathias Reynaert, Jorge Ale-Chilet, Cuicui Chen and Jing Li

No 16038, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study collusion among firms under imperfectly monitored environmental regulation. We develop a model in which firms increase variable profits by shading pollution and reduce expected noncompliance penalties by shading jointly. We apply our model to a case with three German automakers colluding to reduce the size of diesel exhaust fluid (DEF) tanks, an emission control technology used to comply with air pollution standards. To estimate our model, we use data from the European automobile industry from 2007 to 2018. We find that jointly choosing small DEF tanks lowers the expected noncompliance penalties by at least 188-976 million euros. Smaller DEF tanks improve buyer and producer surplus by freeing up valuable trunk space and saving production costs, but they create more pollution damages. Collusion reduces social welfare by 0.78-4.44 billion euros. Environmental policy design and antitrust play complementary roles in protecting society from collusion against regulation.

Date: 2021-04
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP16038 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Colluding Against Environmental Regulation (2021)
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:cpr:ceprdp:16038

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP16038

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().