The Danger of Tightening Standards Without Appropriate Monitoring Effectiveness in a Competitive Market

38 Pages Posted: 10 Feb 2017 Last revised: 25 Feb 2018

Kejia Hu

Vanderbilt University - Operations Management

Sunil Chopra

Northwestern University - Kellogg School of Management

Yuche Chen

National Renewable Energy Laboratory (NREL)

Date Written: February 9, 2017

Abstract

Despite the tightening of emission standards over the last two decades, actual on-road emissions of NOx from diesel vehicles over that period did not decrease. In fact, recent scandals have highlighted the fact that these emissions increased. Based on a 14-year vehicles’ on-road emission dataset, we find that non-compliance across automakers increased significantly as emission standards tightened. Using two sets of regression models, we conclude that both the non-compliance percentage and the non-compliance magnitude among vehicle models increase with stricter emission standards and fiercer competition under the weak on-road monitoring effectiveness that existed during the period under study. We provide some justification for the EU response of temporarily relaxing standards while working to improve monitoring effectiveness. Our results indicate that when competition intensity is strong, regulatory bodies should ensure that any tightening of standards is accompanied by improved monitoring effectiveness if non-compliance rates are to be kept low.

Keywords: Empirical Research, Environmental Operations, Public Policy, Transportation

Suggested Citation

Hu, Kejia and Chopra, Sunil and Chen, Yuche, The Danger of Tightening Standards Without Appropriate Monitoring Effectiveness in a Competitive Market (February 9, 2017). 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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