Essays in Regulatory Economics

This dissertation consists of three essays. The objective of the essays is to study the impacts of different regulations on the behavior of regulated agents. The first two essays focus on the analysis of non-traditional regulatory policies that complement traditional regulations consisting of inspections and fines for plants that violate regulations. The third essay studies the impacts of the Minimum Legal Drinking Age regulation on alcohol and marijuana consumption./nThe first essay of this dissertation analyzes the effects of disclosing information online and through the newspapers about Mexican gas stations that cheat the consumer by selling chiquilitros (liters that are less than a true liter). The information about gas stations that commit fraud is revealed through random inspections that the Consumer Protection Agency (PROFECO by its Spanish acronym) conducts on all gas stations in Mexico and is disclosed in PROFECO's website. Newspapers in different municipalities also publish reports with lists of gas stations that are reported by PROFECO as being in violation of regulations. Using data on inspection histories and local news reports, we estimate the impact of disclosing information online and through the newspapers on the probability of future regulatory compliance. Our findings show that disclosing information online significantly improves compliance with regulations. In contrast, newspaper reports are only effective at improving compliance rates for those gas stations that had been found in violation prior to the publication of the reports. One of the main reasons gas stations improve their behavior is that their sales are negatively affected as a result of bad publicity in the newspapers. Using a unique dataset with monthly gasoline sales at the gas station-level, we show that gas stations that were reported in the newspaper reports suffered a loss of sales of 2.2% to 2.4% in the month of the publication. The results suggest that public disclosure of firm's behavior through the media can serve as a complementary tool for inspections and fines in contexts were fines and sanctions are limited./nThe second essay studies the impacts of self-policing policies to induce environmental audits. State-level statutes in most of the states of the US provide firms that engage in environmental self-audits and that self-report their environmental violations, with a variety of different regulatory rewards, including "immunity" from penalties and "privilege" for information contained in self-audits. These regulations have been controversial in the environmental arena. Critics argue that they provide with incentives to polluters to reduce the level of care, increasing toxic emissions and inspection costs. Proponents argue instead that these regulations can effectively induce more care by polluting plants and lower EPA's enforcement costs. We find that, by encouraging self-auditing, privilege protections tend to reduce pollution and government enforcement activity; however, sweeping immunity protections, by reducing firms' pollution prevention incentives, raise toxic pollution and government inspection oversight. We conclude that self-policing policies that grant limited incentives to firms to self-audit are effective at reducing both toxic emissions and government enforcement effort, whereas those regulations that grant excessive protection by reducing the penalty from disclosed violations, increase both toxic emissions and enforcement costs./nThe third essay estimates the causal effect of increased availability of alcohol on marijuana use. We exploit the Minimum Legal Drinking Age regulation that restricts the consumption of alcohol for people younger than 21 and compare alcohol and marijuana consumption in individuals just below and just above the age of 21. We show that both the probability and frequency of marijuana consumption decrease sharply at age 21, while the probability and frequency of alcohol intake increase, suggesting that marijuana and alcohol are substitutes. We further find that the substitution effect between alcohol and marijuana is stronger for blacks than whites and for women than men. Overall, our results suggest that policies designed to limit alcohol use have the unintended consequence of increasing marijuana use.

Advisor: Perloff, Jeffrey M