The Danger of Tightening Standards in Driving Carmakers’ Non-compliant Behavior – using a regression discontinuity design to confirm causality

36 Pages Posted: 10 Feb 2017 Last revised: 16 Sep 2018

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

Regulations are designed with positive societal intentions but can also lead firms to engage in unethical activities. We argue that tightening regulations can drive organizations intentionally to adopt non-compliant behavior, especially when market interests served are misaligned with regulator interests. Using a 15-year on-road vehicle emissions dataset covering 152,439 vehicles from 42 carmakers, we show that tightening standards directly drives up carmakers' probability and magnitude of noncompliance in the form of excess on-road NOx emissions. Accounting for the size of the EU auto market and the average driving distance per vehicle, the estimated causal impact suggests that there are 8.5 million more vehicles in the EU emitting NOx above standard limits and that this overshooting amounts to 7.8 kilotons of NOx every year solely due to the impact of standards tightening. Vehicle models facing more intense substitution pressure from competitors or less advanced emissions control technology choose to overshoot emissions at higher rates and magnitudes, suggesting that the current one-for-all emissions standard is too naive to counter the heterogeneity in noncompliance due to standards tightening. As a result, policy makers might consider alternative market-segmented policy designs to incorporate technology and competition heterogeneity among carmakers and vehicle types.

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

Suggested Citation

Hu, Kejia and Chopra, Sunil and Chen, Yuche, The Danger of Tightening Standards in Driving Carmakers’ Non-compliant Behavior – using a regression discontinuity design to confirm causality (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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