The Use of Regression Statistics to Analyze Imperfect Pricing Policies
Name
705553.pdf
Description
Published version
Size
1.17 MB
Format
Adobe PDF
Checksum (MD5)
44f02e1ce8d5a00d0e4d21a8f66daf38
Author(s)
Jacobsen, Mark R
Knittel, Christopher R
Sallee, James M
van Benthem, Arthur A
Date Issued
2020
Journal
The Journal of Political Economy
Publisher
University of Chicago Press
Version
Final published version
Abstract
© 2020 by The University of Chicago. All rights reserved. Corrective taxes can solve many market failures, but actual policies frequently deviate from the theoretical ideal because of administrative or political constraints. We present a method to quantify the efficiency costs of constraints on externality-correcting policies or, more generally, the costs of imperfect pricing, using simple regression statistics. Under certain conditions, the R2 and the sum of squared residuals from a regression of true externalities on policy variables measure relative welfare gains frompolicies.We illustrate via four empirical applications: Random mismeasurement of externalities, imperfect electricity pricing, heterogeneity in the longevity of energy-consuming durable goods, and imperfect spatial policy differentiation.
MIT Department
Sloan School of Management
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1086/705553
