NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Corrective Policy and Goodhart's Law: The Case of Carbon Emissions from Automobiles

Mathias Reynaert, James M. Sallee

NBER Working Paper No. 22911
Issued in December 2016
NBER Program(s):Environment and Energy Economics, Industrial Organization, Public Economics

Firms sometimes comply with externality-correcting policies by gaming the measure that determines policy. We show theoretically that such gaming can benefit consumers, even when it induces them to make mistakes, because gaming leads to lower prices by reducing costs. We use our insights to quantify the welfare effect of gaming in fuel-consumption ratings for automobiles, which we show increased sharply following aggressive policy reforms. We estimate a structural model of the car market and derive empirical analogs of the price effects and choice distortions identified by theory. We find that price effects outweigh distortions; on net, consumers benefit from gaming.

download in pdf format
   (602 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22911

Users who downloaded this paper also downloaded* these:
Maclean, Popovici, and Stern w23094 Health Insurance Expansions and Provider Behavior: Evidence from Substance Use Disorder Providers
Stiglitz w22837 The Theory of Credit and Macro-economic Stability
Papageorge, Pauley, Cohen, Wilson, Hamilton, and Pollak w22887 Health, Human Capital and Domestic Violence
Davis and Knittel w22925 Are Fuel Economy Standards Regressive?
Stomberg w22912 Drug Shortages, Pricing, and Regulatory Activity
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us