The Effect of Tightening Standards on Automakers’ Non-compliance

45 Pages Posted: 10 Feb 2017 Last revised: 18 Aug 2020

See all articles by Kejia Hu

Kejia Hu

Vanderbilt University - Operations Management

Sunil Chopra

Northwestern University - Kellogg School of Management

Yuche Chen

National Renewable Energy Laboratory (NREL)

Date Written: September 15, 2018

Abstract

This paper investigates how tightening standards can result in greater non-compliance, especially when market and regulatory interests are misaligned. We confirm a causal relationship that explains the highly publicized auto industry non-compliance phenomenon where on-road NOx emissions exceeded standards. Based on a 15-year on-road vehicle emissions dataset covering 152,439 vehicles from 42 automakers in the EU, we use Regression Discontinuity to identify the causal impact of standards tightening on non-compliance by controlling other confounding factors. Our results suggest that in the absence of effective monitoring, tightening standards directly drives up automakers' non-compliance. Furthermore, we find that automakers facing more intense substitution pressure from competitors or who have less advanced profitable emissions control technology have a higher non-compliance rate. Our findings speak to both policymakers as well as managers in the private sector. When setting limit-based performance goals in situations with conflicting interests and imperfect monitoring, they should anticipate non-compliance from the regulated parties. Our results suggest that tightening standards in such situations should be accompanied by stricter monitoring or other actions that discourage non-compliance.

Keywords: compliance; performance-based regulation; organization ethics; regression discontinuity; vehicle emissions

Suggested Citation

Hu, Kejia and Chopra, Sunil and Chen, Yuche, The Effect of Tightening Standards on Automakers’ Non-compliance (September 15, 2018). Vanderbilt Owen Graduate School of Management Research Paper No. 2914746, Available at SSRN: https://ssrn.com/abstract=2914746 or http://dx.doi.org/10.2139/ssrn.2914746

Kejia Hu (Contact Author)

Vanderbilt University - Operations Management ( email )

Nashville, TN 37203
United States

Sunil Chopra

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Yuche Chen

National Renewable Energy Laboratory (NREL) ( email )

15013 Denver West Parkway
Golden, CO 80401-3393
United States

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