Recent news reports have focused on VW's Emissions cheating scandal. The fully story is available here. For those interested in the costs and benefits of regulation, this case study reveals information about the cost of environmental regulation. VW must have viewed this regulation as very costly to comply with. Otherwise, why would they risk a PR scandal if the company was caught cheating? This point matters because leading economists have been celebrating the benefits of the Clean Air Act for life expectancy. Read Michael Greenstone's piece here.
He wrote:
"
As the United States and other nations continue to debate the costs of environmental regulation, they can do so with the knowledge that the benefits can be substantial."
Does the VW case change our priors about the costs of achieving these gains? Why did this rational profit maximizing company cheat? What were the expected profits from doing so? Did it really believe that the probability that it would be caught cheating was 0%?