Social License to Regulate: Consumer-Producer Collusion and Related Policy Risks for Consumer- Facing Regulation

Used a gas can recently? If not, prepare for a surprise — they aren’t as good as they used to be due to government-mandated emissions-reducing design changes. Faced with persistent environmental and other challenges, government regulators have increasingly turned to such regulations on consumer products. But these consumer-facing regulations create new policy and political problems for regulators, beyond the costs imposed by traditional industry-facing regulation. This paper looks in depth at three case studies of consumer-facing regulation: emissions controls on gas cans, efficiency standards for light bulbs, and European vehicle fuel economy standards. In each case, there is strong evidence for widespread evasion of the regulations by consumers and by consumers and producers working together. This evasion may substantially undercut the claimed benefits of the regulations. Moreover, consumer dissatisfaction with the regulations appears common, perhaps indicating underappreciated costs to consumers and playing in to anti-regulatory narratives. Building on these case studies, the paper explores options available to regulators for mitigating both incentives and opportunities to evade consumer-facing regulation and for anticipating or reducing consumer dissatisfaction. Such options include externality pricing, stricter (and smarter) enforcement, careful selection of regulatory targets, informational approaches, and modifications to ex-ante cost-benefit analysis.