Regulation Failure and CO2-emissions: An Experimental Investigation of the Cape Town Taxi Market
AbstractEconomists often point out that regulations meant to correct market failure sometimes do more harm than good, in particular in developing countries. In this paper, I set up a field experiment to test this proposition in the Cape Town market for metered taxis. I find that if strictly enforced, the local meter regulations provide taxi drivers with an incentives to take detours in order to inflate mileage. Strict compliance to the regulations decreases the trade surplus by 10 percent and increases carbon dioxide emissions by 8 percent. Both private and environmental costs are reduced if the regulations are sidestepped and replaced by informal bargaining. I show theoretically that these results are consistent with a model where the regulations frame the informal bargaining process through the outside option. The combined results show that regulations can have unintended consequences that go well beyond local markets, but that deregulation does not necessarily achieve the first-best.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Labor Studies with number 2011:13.
Length: 26 pages
Date of creation: 05 Dec 2011
Date of revision: 12 Aug 2013
Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
Informal sector; Market regulations; Taxi Experiment; Incomplete Contracts; Transac- tion Costs; Institutions; Natural Field Experiment; Environmental Economics;
Find related papers by JEL classification:
- H10 - Public Economics - - Structure and Scope of Government - - - General
- Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-CTA-2011-12-13 (Contract Theory & Applications)
- NEP-EXP-2011-12-13 (Experimental Economics)
- NEP-GTH-2011-12-13 (Game Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ellingsen, Tore & Rosén, Åsa, 1997.
"Fixed or Flexible? Wage Setting in Search Equilibrium,"
Working Paper Series in Economics and Finance
185, Stockholm School of Economics.
- Tore Ellingsen & Asa Rosen, 2003. "Fixed or Flexible? Wage-setting in Search Equilibrium," Economica, London School of Economics and Political Science, vol. 70(278), pages 233-250, 05.
- Ellingsen, Tore & Rosén, Åsa, 1997. "Fixed or Flexible? Wage Setting in Search Equilibrium," Working Paper Series 1997:17, Uppsala University, Department of Economics.
- Ellingsen, T. & Rosen, A., 1997. "Fixed or Flexible? Wage Setting in Search Equilibrium," Papers 1997-17, Uppsala - Working Paper Series.
- Georg Noldeke & Klaus M. Schmidt, 1995.
"Option Contracts and Renegotiation: A Solution to the Hold-Up Problem,"
RAND Journal of Economics,
The RAND Corporation, vol. 26(2), pages 163-179, Summer.
- Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
- Grether, David M & Schwartz, Alan & Wilde, Louis L, 1988.
"Uncertainty and Shopping Behaviour: An Experimental Analysis,"
Review of Economic Studies,
Wiley Blackwell, vol. 55(2), pages 323-42, April.
- Grether, David M. & Schwartz, Alan & Wilde, Louis L., . "Uncertainty and Shopping Behavior: An Experimental Analysis," Working Papers 511, California Institute of Technology, Division of the Humanities and Social Sciences.
- Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2011.
"Field Experiments with Firms,"
CEPR Discussion Papers
8412, C.E.P.R. Discussion Papers.
- Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2011. "Field Experiments with Firms," IZA Discussion Papers 5723, Institute for the Study of Labor (IZA).
- Oriana Bandiera & Iwan Baranky & Imran Rasul, 2011. "Field Experiments with Firms," STICERD - Economic Organisation and Public Policy Discussion Papers Series 028, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Ellingsen, Tore & Johannesson, Magnus, 2000.
"Is There a Hold-up Problem?,"
Working Paper Series in Economics and Finance
357, Stockholm School of Economics.
- Michelacci, Claudio & Suarez, Javier, 2002.
"Incomplete Wage Posting,"
CEPR Discussion Papers
3658, C.E.P.R. Discussion Papers.
- John List & David Reiley, 2008.
Artefactual Field Experiments
00091, The Field Experiments Website.
- David P. Baron & David Besanko, 1987. "Monitoring, Moral Hazard, Asymmetric Information, and Risk Sharing in Procurement Contracting," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 509-532, Winter.
- Loukas Balafoutas & Adrian Beck & Rudolf Kerschbamer & Matthias Sutter, 2011.
"What drives taxi drivers? A field experiment on fraud in a market for credence goods,"
2011-11, Faculty of Economics and Statistics, University of Innsbruck.
- Loukas Balafoutas & Adrian Beck & Rudolf Kerschbamer & Matthias Sutter, 2013. "What Drives Taxi Drivers? A Field Experiment on Fraud in a Market for Credence Goods," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 876-891.
- Balafoutas, Loukas & Beck, Adrian & Kerschbamer, Rudolf & Sutter, Matthias, 2011. "What Drives Taxi Drivers? A Field Experiment on Fraud in a Market for Credence Goods," IZA Discussion Papers 5700, Institute for the Study of Labor (IZA).
- Loukas Balafoutas & Adrian Beck & Rudolf Kerschbamer & Matthias Sutter, 2011. "What Drives Taxi Drivers? A Field Experiment on Fraud in a Market for Credence Goods," CESifo Working Paper Series 3461, CESifo Group Munich.
- Huberman, Gur & Kahn, Charles M., 1988. "Strategic renegotiation," Economics Letters, Elsevier, vol. 28(2), pages 117-121.
- Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
- Chung, Tai-Yeong, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 1031-42, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarina Grönvall).
If references are entirely missing, you can add them using this form.