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Corrective Policy and Goodhart's Law: The Case of Carbon Emissions from Automobiles / Mathias Reynaert, James M. Sallee.
- Format:
- Book
- Author/Creator:
- Reynaert, Mathias.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22911.
- NBER working paper series no. w22911
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Corrective Policy and Goodhart's Law
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- Firms sometimes comply with externality-correcting policies by gaming the measure that determines policy. We show theoretically that such gaming can benefit consumers, even when it induces them to make mistakes, because gaming leads to lower prices by reducing costs. We use our insights to quantify the welfare effect of gaming in fuel-consumption ratings for automobiles, which we show increased sharply following aggressive policy reforms. We estimate a structural model of the car market and derive empirical analogs of the price effects and choice distortions identified by theory. We find that price effects outweigh distortions; on net, consumers benefit from gaming.
- Notes:
- Print version record
- December 2016.
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