Colluding Against Environmental Regulation

Jing Li
MIT Sloan School of Management
November 15, 2021 – 05:00 – 06:15 PM (CET)
Live virtual event: please register for this talk via Zoom


Speaker Bio
Jing Li holds the William Barton Rogers Career Development Chair of Energy Economics at the MIT Sloan School of Management. From 2017-2018, Jing was a Postdoctoral Associate of the MIT Energy Initiative. Jing's research interests lie in energy economics and industrial organization, focusing on development and adoption of new technologies. Her most recent work examines compatibility and investment in electric vehicle recharging networks in the United States, and cost pass-through in the E85 retail market. Jing received double B.Sc. degrees in Mathematics and Economics from MIT in 2011 and her Ph.D. in Economics from Harvard in 2017.


Seminar Abstract
We study collusion among firms in response to imperfectly monitored environmental regulation. Firms improve market profits by shading pollution and evade noncompliance penalties by shading jointly. We quantify the welfare effects of collusion among three German automakers to reduce the size of diesel exhaust fluid (DEF) tanks, an emission control technology used to comply with air pollution standards. We develop a structural model of the European automobile industry (2007-2018), where smaller DEF tanks create more pollution damages, but improve buyer and producer surplus by freeing up valuable trunk space and reducing production costs. We find that choosing small DEF tanks jointly reduced the automakers' expected noncompliance penalties by at least 188--976 million euros. Collusion reduces social welfare by between 0.78 and 4.44 billion euros. Environmental policy design and antitrust play complementary roles in protecting society from collusion against regulation.


Admission information
The seminar is open to the public. Registration will be open approximately two weeks before the event.
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