Abstract
This study investigates how tightening standards can result in greater non-compliance, especially when market and regulatory interests are misaligned. We confirm a causal relationship that explains the highly publicized auto industry non-compliance phenomenon where on-road NOx emissions exceeded standards. Based on a 15-year on-road vehicle emissions dataset covering 148,837 vehicles from 42 automakers in the EU, we use regression discontinuity to identify the causal impact of standards tightening on non-compliance by controlling other confounding factors. Our results suggest that in the absence of effective monitoring, tightening standards directly drives up automakers’ non-compliance. Furthermore, we find that automakers facing more intense substitution pressure from competitors or with less advanced emissions control technology have a higher non-compliance rate. Our findings speak to both policymakers as well as managers in the private sector. When setting limit-based performance goals in situations with conflicting interests and imperfect monitoring, they should anticipate non-compliance from the regulated parties. Our results suggest that tightening standards in such situations should be accompanied by stricter monitoring or other actions that discourage non-compliance.
Original language | English (US) |
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Pages (from-to) | 3094-3115 |
Number of pages | 22 |
Journal | Production and Operations Management |
Volume | 30 |
Issue number | 9 |
DOIs | |
State | Published - Sep 2021 |
Keywords
- compliance
- organization ethics
- performance-based regulation
- regression discontinuity
- vehicle emissions
ASJC Scopus subject areas
- Management Science and Operations Research
- Industrial and Manufacturing Engineering
- Management of Technology and Innovation