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Regulation Failure and CO2-emissions: An Experimental Investigation of the Cape Town Taxi Market

  • Bengtsson, Niklas

    ()

    (Uppsala Center for Labor Studies)

Economists 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.

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File URL: http://www.ucls.nek.uu.se/digitalAssets/171/171430_201113_2.pdf
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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Labor Studies with number 2011:13.

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Length: 26 pages
Date of creation: 05 Dec 2011
Date of revision: 12 Aug 2013
Handle: RePEc:hhs:uulswp:2011_013
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/
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  1. Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2011. "Field Experiments with Firms," IZA Discussion Papers 5723, Institute for the Study of Labor (IZA).
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  8. 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.
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  10. Claudio Michelacci & Javier Suarez, 2006. "Incomplete Wage Posting," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1098-1123, December.
  11. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
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