Seminar

Françeska Tomori (URV & CREIP, Tarragona) The impact of environmental regulatory capture on innovation and emissions: The case of the automobile industry

Organised by Section Economics
Date

Tue 19 November 2019 12:30 to 13:30

Venue Leeuwenborch, gebouwnummer 201
Hollandseweg 1
201
6706 KN Wageningen
0317-483639
Room C82

This paper analyzes how regulatory capture by automobile producers affects their incentives to innovate and the amount of total emissions. Two types of producers are considered: diesel and petrol car. Our results indicate that with a welfare-maximizing regulator that weights consumer surplus and the profits of both car producers equally there are fewer emissions and there is more environmental innovation than under a regulator that merely maximizes consumer welfare. The intuition for this result lies in the fact that a consumer-orientated regulator uses higher emission standards to increase the competition between car producers. As emission standards and environmental innovation are strategic substitutes, car producer reduce their innovation effort as a consequence of this. The result is robust to alternative specifications such as regulatory capture by only one car producer or different environmental damages of different engine types.