Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards
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- Soren T Anderson
- Department of Economics and Department of Agricultural, Food, and Resource Economics, Michigan State University, 110 Marshall-Adams Hall, East Lansing, MI 48824.
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- James M Sallee
- The Harris School, University of Chicago, 1155 E. 60th St., Chicago, IL 60637.
説明
<jats:p> 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. Profit-maximizing 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) </jats:p>
収録刊行物
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- American Economic Review
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American Economic Review 101 (4), 1375-1409, 2011-06-01
American Economic Association
