Review of Economic Studies Vol. 93 No. 1 2026

Colluding Against Environmental Regulation

Jorge Alé‐Chilet¹; Cuicui Chen²; Jing Li³; Mathias Reynaert⁴

¹ Universidad de Los Andes · ² State University of New York at Albany · ³ Tufts University · ⁴ Toulouse School of Economics, University of Toulouse Capitole

Abstract

We study collusion among firms against imperfectly monitored environmental regulation. Firms increase variable profits by violating regulation and reduce expected noncompliance penalties by violating jointly. We consider a case of three German automakers colluding to reduce the effectiveness of emissions control technology. By estimating a structural model of the European automobile industry from 2007 to 2018, we find that collusion lowers expected noncompliance penalties substantially and increases buyer and producer surplus. Due to increased pollution, welfare decreases by € 1.57–5.57 billion. We show how environmental policy design and antitrust play complementary roles in preventing noncompliance.

DOI

10.1093/restud/rdaf024

Volume

93

Issue

1

Pages

35-71

Language

en

Sources

openalex crossref

Cite

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