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Colluding against Environmental Regulation

Author

Listed:
  • Jorge Ale-Chilet

    (UANDES - Universidad de los Andes [Santiago])

  • Cuicui Chen

    (SUNY - State University of New York)

  • Jing Li

    (Tufts University [Medford])

  • Mathias Reynaert

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We study collusion among firms against imperfectly monitored environmental regulation. Firms increase variable profits by violating regulation and reduce expected noncompliance penalties by violating jointly. We consider a case of three German automakers colluding to reduce the effectiveness of emissions control technology. By estimating a structural model of the European automobile industry from 2007 to 2018, we find that collusion lowers expected noncompliance penalties substantially and increases buyer and producer surplus. Due to increased pollution, welfare decreases by €1.57–5.57 billion. We show how environmental policy design and antitrust play complementary roles in preventing noncompliance.

Suggested Citation

  • Jorge Ale-Chilet & Cuicui Chen & Jing Li & Mathias Reynaert, 2026. "Colluding against Environmental Regulation," Post-Print hal-05492381, HAL.
    • Handle: RePEc:hal:journl:hal-05492381
    DOI: 10.1093/restud/rdaf024
    Note: View the original document on HAL open archive server: https://hal.science/hal-05492381v1
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    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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