Document Type

Article

Journal/Book Title/Conference

Environment and Development Economics

Volume

22

Issue

6

Publisher

Cambridge

Publication Date

12-14-2017

DOI

10.1017/S1355770X17000316

Abstract

This paper investigates the role of additional regulation in mitigating the “adverse scale effect” associated with daily driving restrictions, which has become a popular regulatory tool used to control episodic air pollution internationally, especially in developing countries. We find that although an annual vehicle registration tax reduces the incentive to purchase additional vehicles among households whose sole purpose for doing so is to “cheat” the restriction (i.e., the “adverse scale effect”), it does so with an external cost. The cost occurs because households whose purpose for purchasing an additional vehicle is not to cheat the restriction are given the same disincentive with the tax. We show how simple one- and twostage lotteries can be used to not only discriminate between cheater and non-cheater households (in particular, to avoid providing a disincentive to the latter type of household), but also to provide an even stronger disincentive to the former.

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