Who Benefits When Firms Game Corrective Policies?

Mathias Reynaert and James Sallee

No 16-739, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Firms sometimes comply with externality-correcting policies by gaming the measure that determines policy. We show theoretically that such gaming can benefit consumers, even when it induces them to make mistakes, because gaming leads to lower prices by reducing costs. We use our insights to quantify the welfare effect of gaming in fuel-consumption ratings for automobiles, which we show increased sharply following aggressive policy reforms. We estimate a structural model of the car market and derive empirical analogs of the price effects and choice distortions identified by theory. We find that price effects outweigh distortions; on net, consumers benefit from gaming.

Keywords: gaming; corrective taxation; 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: 2016-12, Revised 2019-08
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 (5)

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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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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:31250

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