IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v104y2020ics0095069620301005.html
   My bibliography  Save this article

Do regulatory loopholes distort technical change? Evidence from new vehicle launches under the Japanese fuel economy regulation

Author

Listed:
  • Konishi, Yoshifumi
  • Managi, Shunsuke

Abstract

Environmental regulation often creates regulatory loopholes that are not ideal in first-best settings. Such loopholes affect the marginal costs of alternative compliance strategies, leading to distortion in firm's compliance choice. We quantify the unintended effect of such loopholes on technical change in the Japanese automobile industry, using variant-level data on new vehicle launches. We employ a triple difference strategy, exploiting the two-fold treatment-control structures within each product segment, due to regulation-induced variations in the Japanese fuel economy standards over time. Our results indicate that regulation-induced differences in technical trade-offs have induced a distortion not only in product attributes but also in technical progress in fuel economy technology.

Suggested Citation

  • Konishi, Yoshifumi & Managi, Shunsuke, 2020. "Do regulatory loopholes distort technical change? Evidence from new vehicle launches under the Japanese fuel economy regulation," Journal of Environmental Economics and Management, Elsevier, vol. 104(C).
  • Handle: RePEc:eee:jeeman:v:104:y:2020:i:c:s0095069620301005
    DOI: 10.1016/j.jeem.2020.102377
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095069620301005
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jeem.2020.102377?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    2. Soren T. Anderson & James M. Sallee, 2011. "Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," American Economic Review, American Economic Association, vol. 101(4), pages 1375-1409, June.
    3. Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
    4. Ying Fan, 2013. "Ownership Consolidation and Product Characteristics: A Study of the US Daily Newspaper Market," American Economic Review, American Economic Association, vol. 103(5), pages 1598-1628, August.
    5. Christopher R. Knittel, 2012. "Reducing Petroleum Consumption from Transportation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 93-118, Winter.
    6. Raphael Calel & Antoine Dechezleprêtre, 2016. "Environmental Policy and Directed Technological Change: Evidence from the European Carbon Market," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 173-191, March.
    7. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
    8. Sallee, James M. & Slemrod, Joel, 2012. "Car notches: Strategic automaker responses to fuel economy policy," Journal of Public Economics, Elsevier, vol. 96(11), pages 981-999.
    9. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.
    10. Yoshifumi Konishi & Meng Zhao, 2017. "Can Green Car Taxes Restore Efficiency? Evidence from the Japanese New Car Market," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(1), pages 51-87.
    11. Günter J. Hitsch, 2006. "An Empirical Model of Optimal Dynamic Product Launch and Exit Under Demand Uncertainty," Marketing Science, INFORMS, vol. 25(1), pages 25-50, 01-02.
    12. Koichiro Ito & James M. Sallee, 2018. "The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel Economy Standards," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 319-336, May.
    13. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 941-975.
    14. Austin, David & Dinan, Terry, 2005. "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 562-582, November.
    15. Mark R. Jacobsen, 2013. "Evaluating US Fuel Economy Standards in a Model with Producer and Household Heterogeneity," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 148-187, May.
    16. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
    17. Brian R. Copeland & M. Scott Taylor, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 755-787.
    18. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-641, June.
    19. Christopher R. Knittel, 2011. "Automobiles on Steroids: Product Attribute Trade-Offs and Technological Progress in the Automobile Sector," American Economic Review, American Economic Association, vol. 101(7), pages 3368-3399, December.
    20. Thomas Klier & Joshua Linn, 2012. "New‐vehicle characteristics and the cost of the Corporate Average Fuel Economy standard," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 186-213, March.
    21. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    22. Pinelopi Koujianou Goldberg, 1998. "The Effects of the Corporate Average Fuel Efficiency Standards in the US," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 1-33, March.
    23. Thomas G. Wollmann, 2018. "Trucks without Bailouts: Equilibrium Product Characteristics for Commercial Vehicles," American Economic Review, American Economic Association, vol. 108(6), pages 1364-1406, June.
    24. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
    25. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-1175, September.
    26. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
    27. Katja Seim, 2006. "An empirical model of firm entry with endogenous product‐type choices," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 619-640, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wesseh, Presley K. & Benjamin, Nelson I. & Lin, Boqiang, 2022. "The coordination of pumped hydro storage, electric vehicles, and climate policy in imperfect electricity markets: Insights from China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 160(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mathias Reynaert, 2021. "Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market," Review of Economic Studies, Oxford University Press, vol. 88(1), pages 454-488.
    2. Rik L. Rozendaal & Herman R. J. Vollebergh, 2021. "Policy-Induced Innovation in Clean Technologies: Evidence from the Car Market," CESifo Working Paper Series 9422, CESifo.
    3. Klier, Thomas & Linn, Joshua, 2016. "The effect of vehicle fuel economy standards on technology adoption," Journal of Public Economics, Elsevier, vol. 133(C), pages 41-63.
    4. Wang, Yiwei & Miao, Qing, 2021. "The impact of the corporate average fuel economy standards on technological changes in automobile fuel efficiency," Resource and Energy Economics, Elsevier, vol. 63(C).
    5. Zhangsheng Liu & Liuqingqing Yang & Liqin Fan, 2021. "Induced Effect of Environmental Regulation on Green Innovation: Evidence from the Increasing-Block Pricing Scheme," IJERPH, MDPI, vol. 18(5), pages 1-15, March.
    6. Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
    7. Klier, Thomas & Linn, Joshua, 2013. "Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards," RFF Working Paper Series dp-13-40, Resources for the Future.
    8. Konishi, Yoshifumi & Kuroda, Sho, 2023. "Why is Japan’s carbon emissions from road transportation declining?," Japan and the World Economy, Elsevier, vol. 66(C).
    9. Koichiro Ito & James M. Sallee, 2018. "The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel Economy Standards," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 319-336, May.
    10. Daniel Chaves, 2022. "Market Power, Taxation and Product Variety in the Brazilian Automobile Industry," University of Western Ontario, Departmental Research Report Series 20227, University of Western Ontario, Department of Economics.
    11. Lucas W. Davis & Christopher R. Knittel, 2019. "Are Fuel Economy Standards Regressive?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(S1), pages 37-63.
    12. Patricia Laurens & Christian Le Bas & Stéphane Lhuillery & Antoine Schoen, 2017. "The determinants of cleaner energy innovations of the world’s largest firms: the impact of firm learning and knowledge capital," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(4), pages 311-333, May.
    13. Arik Levinson, 2019. "Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(S1), pages 7-36.
    14. Li, Zhen & Wu, Baijun & Wang, Danyang & Tang, Maogang, 2022. "Government mandatory energy-biased technological progress and enterprises' environmental performance: Evidence from a quasi-natural experiment of cleaner production standards in China," Energy Policy, Elsevier, vol. 162(C).
    15. Takahiko Kiso, 2019. "Environmental Policy and Induced Technological Change: Evidence from Automobile Fuel Economy Regulations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 785-810, October.
    16. D’Haultfœuille, Xavier & Durrmeyer, Isis & Février, Philippe, 2016. "Disentangling sources of vehicle emissions reduction in France: 2003–2008," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 186-229.
    17. Cameron Hepburn & Jacquelyn Pless & David Popp, 2018. "Policy Brief—Encouraging Innovation that Protects Environmental Systems: Five Policy Proposals," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 154-169.
    18. Lazkano, Itziar & Pham, Linh, 2016. "Do Fossil fuel Taxes Promote Innovation in Renewable Electricity Generation?," Discussion Paper Series in Economics 16/2016, Norwegian School of Economics, Department of Economics.
    19. Julián D. Gómez, 2018. "¿Qué determina la adopción de tecnologías para la generación de energías renovables entre países?," Documentos CEDE 17132, Universidad de los Andes, Facultad de Economía, CEDE.
    20. Thomas Klier & Joshua Linn & Yichen C. Zhou, 2020. "The effects of fuel prices and vehicle sales on fuel‐saving technology adoption in passenger vehicles," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(3), pages 543-578, July.

    More about this item

    Keywords

    Automobile; Triple difference; Energy policy; Fuel economy regulation; Ratchet effect; Regulatory loopholes; Technical change; Technology policy;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:104:y:2020:i:c:s0095069620301005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.