Fuel Adulteration

Research Team: Sivapradha CR, Snehashis Sarkar
LEAD Centre: Centre for Development Finance ( CDF)
Focus Area: Environment and Climate Change, Infrastructure and Governance
Project Geography: India
Partner:
Status: Completed

Background:

This project seeks to understand and test policy solutions to an important governance problem in developing countries—quality deterioration of goods by firms. It focuses specifically on the case of gasoline adulteration in India, which has large environmental, health, and economic costs. The project will use an experimental intervention to understand the causes of this problem and test a consumer-based policy intervention to mitigate the problem.

The Indian government recognizes fuel adulteration is a serious policy problem. Current approaches in India and other countries tend to rely on firm-side policies, like regulation and legal enforcement. However, given the weak governance environment in poor countries, these efforts have been largely unsuccessful. If the project results demonstrate that the gasoline market has unravelled, then the more direct policy of simply removing the asymmetric information problem could be a better approach for these countries.

Objectives
Documenting market unraveling, which would make a substantive contribution to the economics literature. In addition, fuel adulteration is one example of the larger problem of quality deterioration by firms—a problem on which we have limited evidence. This project would therefore make an early contribution to the literature on private sector corruption in poor countries. Finally, by pinning down the causes of fuel adulteration, the project’s results would provide guidance on how to design targeted policies to combat it.