using loopholes to reveal the marginal cost of regulation the case of fuel economy standards estimating the cost of regulation is difficult firms sometimes reveal costs indirectly however when they exploit loopholes to avoid regulation we apply this insight to fuel economy standards for automobiles these standards feature a loophole that gives automakers a bonus when they equip a vehicle with flexible fuel capacity profitmaximizing automakers will equate the marginal cost of compliance using the loophole which is observable with the unobservable costs of strategies that genuinely improve fuel economy based on this insight we estimate that tightening standards by one mile per gallon would have cost automakers just 9 27 per vehicle in recent years jel l51 l62 q48

new vehicle feebates new vehicle feebate programs encourage improved fleet wide vehicle fuel efficiency yet analyses of these policies have been limited to ad hoc proposals in this paper we exploit an extensive multi year dataset which includes more than 16 million observations to evaluate the welfare implications of a long standing vehicle feebate program in the canadian province of ontario we 1 show that second best optimal feebates can be written as a function of new vehicle pigouvian taxes 2 find that ontario s feebate program was welfare enhancing relative to a no feebate scenario but that a second best optimal benchmark would have yielded additional welfare while reducing fleet wide emissions and 3 find that ontarian consumers responded asymmetrically to fees versus rebates

imported inputs in an optimising model of a small open economy abstract this paper addresses two issues first a model of optimising behaviour in a small open economy is presented and analysed a solution is presented to the problem of inconsistency between the domestic discount rate and the world interest rate using rawl s criterion for economic justice the resulting model of a small open economy has sensible properties and resembles non optimising models used in open economy macroeconomics second the analysis is extended to allow for a single imported factor of production and the impacts of a rise in its world price are examined the long run effects are a loss of economic welfare a reduction in the domestic capital stock on plausible assumptions about hicks allen complementarity a possible appreciation of the exchange rate in the long run although a short run depreciation is also possible and an ambiguous effect on the stock of foreign equities owned by the small economy

estimating import supply and demand elasticities analysis and implications i feenstra 1994 developed and broda and weinstein 2006 refined a structural estimator to estimate import demand and supply elasticities working through the first principles of the methodology from leamer 1981 this paper analyzes and improves the technique to provide a unified estimator of import supply and demand elasticities the proposed liml routine corrects small sample biases and constrained search inefficiencies standard estimates are shown to overestimate the median elasticity of substitution by over 35 applied to us import data from 1993 2007 the biases of the standard estimates translate into an understatement of consumer gains from product variety by a factor of 6 lastly i investigate the implications of violations to the underlying assumptions of the model

e ztax tax salience and tax rates this paper examines whether the salience of a tax system affects equilibrium tax rates i analyze how tolls change after toll facilities adopt electronic toll collection etc drivers are substantially less aware of tolls paid electronically i estimate that in steady state tolls are 20 to 40 percent higher than they would have been without etc consistent with a salience based explanation for this toll increase i find that under etc driving becomes less elastic with respect to the toll and toll setting becomes less sensitive to the electoral calendar alternative explanations appear unlikely to be able to explain the findings

impacts of long range increases in the fuel economy cafe standard i introduction and background in 1975 the u s government enacted legislation regulating the fuel efficiency of new motor vehicles the apparent objective of this law is to reduce american dependence on foreign oil after large increases in the price of petroleum in the late 1990s and with continued conflict in the middle east corporate average fuel economy cafe standards once again became a topic of interest a number of proposals for changing the cafe standards were discussed in congress in early 2002 culminating in a defeat in the senate of an amendment that would have required a 50 increase in the relevant cafe standards in place of that increase the senate voted to require the executive branch to examine the impact of further increases in the cafe standard this work evaluates the long term economic implications of raising the standard by 3 0 miles per gallon mpg above current levels in industry parlance this approach is sometimes referred to as technology forcing i choose 3 0 mpg because it reflects the focus of a may 2001 report by the vice president s task force on energy policy and because it reflects several legislative proposals in congress 1 the long term refers to a length of time such that manufacturers can adjust vehicle technologies and powertrain designs to reduce the amount of fuel required to move a given amount of mass or to achieve a given amount of performance or acceleration per gallon of fuel consumed previous work on cafe standards such as kleit 1990 and thorpe 1997 focused on short term responses to higher cafe standards where technology forcing was not an option for manufacturers the analysis is conducted under two different scenarios the first scenario is that cafe standards are not binding in the current marketplace the second scenario takes account of the current impact of cafe standards and then analyzes the costs and benefits of increasing the standards the costs of cafe standards are broken down into two areas the changes in consumer and producer surplus and the increase in externalities caused by the increased driving that higher cafe standards induce the plan of this article is as follows section ii reviews the history of cafe standards and briefly discusses the rationale for the regulation section iii develops a model in which the current cafe standard is assumed to be nonbinding section iv provides estimates of the impacts for a long term 3 0 mpg cafe increase under the assumption that the current standard is not binding section v then revises the model to take into account the arguably more realistic assumption that the existing cafe standard was in fact binding it then reports estimates for a long term 3 0 mpg increase section vi provides a brief cost benefit analysis of cafe increases and section vii provides a summary and conclusion ii background on automobile fuel economy standards a brief history of the cafe program the cafe program as enacted in 1975 called for all manufacturers selling more than 10 000 autos per year in the united states to reach the mandated cafe levels cafe levels rose from 19 0 mpg in 1978 to 27 5 mpg in 1985 and later years a manufacturer s domestic and foreign cars are placed in separate cafe categories based on the domestic context of the vehicle if a car has over 75 american context it is considered domestic and placed in the domestic pool otherwise it is placed in the foreign car pool see kleit 1990 for a discussion light trucks pickup trucks sport utility vehicles suvs and minivans were placed in a different cafe pool than cars when cafe standards were originally passed these vehicles represented a small fraction of the relevant market by 2001 however such vehicles made up approximately one half of the sales of personal vehicles in 2001 light trucks were required to reach 20 7 mpg there is no domestic and foreign division in the cafe regulation for light trucks

costs of energy efficiency mandates can reverse the sign of rebound abstract improvements in energy efficiency reduce the cost of consuming services from household cars and appliances and can result in a positive rebound effect that offsets part of the direct energy savings we use a general equilibrium model to derive analytical expressions that allow us to compare rebound effects from a costless technology shock cts to those from a costly energy efficiency standard ees we decompose each total effect on the use of energy into a direct efficiency effect direct rebound effect and indirect rebound effect we show which factors determine the sign and magnitude of each rebound from a cts is generally positive as in prior literature but we also show how a pre existing ees can negate the direct energy savings from the cts leaving only the positive rebound effect on energy use then we analyze increased stringency of an ees and we show exactly when the increased costs reverse the sign of rebound using plausible parameter values in this model we find that indirect effects can outweigh the direct effects captured in partial equilibrium models and that the total rebound from a costly ees can be negative

clearing the air the costs and consequences of higher cafe standards and increased gasoline taxes abstract concerns about energy security and climate change have sparked legislators interest in reducing gasoline consumption by increasing corporate average fuel economy cafe standards using an empirically rich simulation model and cost estimates for anticipated fuel economy technologies we estimate annual costs of reducing long run gasoline consumption by 10 via a 3 8 miles per gallon increase in the standards and the potential cost savings from allowing manufacturers to buy and sell fuel economy credits maximum gasoline savings would be realized only after all existing vehicles were replaced or 14 years in our model a gasoline tax would produce greater immediate savings by encouraging people to drive less and eventually to choose more fuel efficient vehicles we demonstrate the advantage of a tax by comparing the cost of the higher cafe standards over the first 14 years against the cost of a gasoline tax that would save the same amount of gasoline over that time

the value of nonindigenous species risk assessment in international trade abstract managing the introduction of nonindigenous species is becoming a major goal of policy makers at regional national and international scales here we investigate at the national level the ideal design and expected net benefits of a risk assessment program for evaluating the desirability of nonindigenous species imports we show how to enhance the statistical rigor of such a system by correcting a common non random sampling problem encountered in the data this correction enables model output to be interpreted in an economically relevant way and facilitates a theoretically rigorous characterization of the balance between trade and nonindigenous species establishment risk using reptiles and amphibians imported to the u s as a case study we characterize economic outcomes over a range of cases and demonstrate substantial expected returns to such a screening program relative to the current effectively open door policy our results are informative for the current debate in the u s about whether to require federal agencies to apply risk assessment before allowing a species for import the framework presented decomposes a complex argument about risk management into component economic and statistical parts allowing for debate and improved understanding over each element to inform the overall program in a transparent fashion

marriage market matching and conspicuous consumption in china i introduction a preference for sons coupled with the one child policy has combined to generate a relative shortage of females in china estimates from china s population census suggest that for cohorts bom over the period 1970 2000 males have grown in share from 51 to 57 of the total population qian 2008 1251 estimates of the share of missing women in the country now exceed 40 million women bulte et al 2011 existing research has shown that these skewed sex ratios are producing widespread social and economic upheaval including higher saving rates ballooning housing prices wei and zhang 2011 wei et al 2012 higher rates of bachelorhood guilmoto 2012 and reduced overall welfare bhaskar 2011 recent research also suggests that spending on status goods appears to be growing in magnitude even in poorer parts of rural china brown et al 2011 chen et al 2012 in this article we investigate the extent to which skewed sex ratios influence expenditure decisions in a broad sample of roughly 24 000 automobile transactions across china over the period 2009 2011 using a differences indifferences in differences approach we show that unmarried male consumers who reside in an area with an unfavorable sex ratio purchase more expensive vehicles than their married peers we also identify specific luxury vehicle models and confirm that the cars purchased by these consumers are more likely to be classified as higher end models the pressure generated by skewed sex ratios on individuals to consume conspicuously may vary along a number of dimensions we are able to explore two sources of heterogeneity in our sample first we show that the estimated relationship is both larger in magnitude and more precisely estimated among the quartile of individuals living in areas with the most highly skewed sex ratios second we find that the poorest quartile of unmarried males in our sample exhibit the largest changes in expenditure 1 this result is consistent with a situation in which individuals of varying income and potentially of varying reference groups use different sets of commodities to signal wealth as documented by chai and kaus 2012 for south african consumers finally we investigate whether this behavior generates negative externalities in the form of lower average fuel economy and higher average vehicle weight a factor that can significantly increase mortality in traffic accidents anderson and auffhammer 2014 our results suggest that consumption signaling skews the pool of purchased automobiles to lower gas mileage vehicles but has little impact on overall vehicle weight the use of consumption expenditure to signal social status has attracted a great deal of attention in the economics literature recent work has focused on empirically identifying consumption visibility and exploring the determinants and motivations for signaling charles et al 2009 heffetz 2011 these efforts routinely classify automobiles as among the most conspicuous of purchases and a number of papers focus specifically on vehicle purchases for instance grinblatt et al 2008 show that finnish consumers are directly influenced by the automobile purchases of their nearest neighbors particularly for recent purchases positional spending has also been studied in developing countries with research highlighting the fact that the allocation of expenditure for this purpose has the potential to act as a poverty trap in this setting banerjee and duflo 2007 brown et al 2011 case et al 2013 kaus 2013 moav and neeman 2010 2012 these effects appear to be amplified by marriage market conditions for instance chen et al 2012 show that relative to families with daughters poor chinese households with sons undertake higher levels of social gift giving associated with maintaining guanxi networks of influence in chinese society our analysis sample confers several unique advantages in this context

churn versus diversion in antitrust an illustrative model an important question in horizontal merger analysis is what share of a firm s lost output from a unilateral price increase will divert to its merger partner this diversion ratio is often estimated using data on customer switching from a firm to its rivals churn we use a tractable oligopoly model to investigate the potential biases of such estimates depending on what caused the churn shifts in quality or marginal cost of the firm or of a rival or demand side shifts due to changed circumstances or learning about product attributes with demand side shifts churn can be greater between more distant competitors

distributional and efficiency impacts of increased us gasoline taxes we examine the impacts of increased us gasoline taxes in a model that links the markets for new used and scrapped vehicles and recognizes the consider able heterogeneity among households and cars household choice parameters derive from an estimation procedure that integrates individual choices for car ownership and miles traveled we find that each cent per gallon increase in the price of gasoline reduces the equilibrium gasoline consumption by about 0 2

is pay as you drive insurance a better way to reduce gasoline than gasoline taxes gasoline taxes are widely perceived as the most efficient instrument for reducing gasoline consumption because they exploit all behavioral responses for reducing fuel use including reduced driving and improved fuel economy at present however higher fuel taxes are viewed as a political nonstarter pay as you drive payd auto insurance which involves replacing existing lump sum premiums with premiums that vary in proportion to miles driven should be more practical since they do not raise driving costs for the average motorist we show that when impacts on a broad range of motor vehicle externalities are considered payd also induces significantly higher welfare gains than comparable gasoline tax increases for fuel reductions below 9 the reason is that under payd all of the reduction in fuel use rather than just a fraction comes from reduced driving this produces a substantial additional efficiency gain because mileage related external costs especially congestion and accidents are relatively large in magnitude this abstract was borrowed from another version of this item

pounds that kill the external costs of vehicle weight heavier vehicles are safer for their own occupants but more hazardous for other vehicles simple theory thus suggests that an unregulated vehicle fleet is inefficiently heavy using three separate identification strategies we show that controlling for own vehicle weight being hit by a vehicle that is 1000 pounds heavier generates a 40 50 increase in fatality risk these results imply a total accident related externality that exceeds the estimated social cost of us carbon emissions and is equivalent to a gas tax of 0 97 per gallon 136 billion annually we consider two policies for internalizing this external cost a weight varying mileage tax and a gas tax and find that they are similar for most vehicles the findings suggest that european gas taxes may be much closer to optimal levels than the us gas tax language en

automakers short run responses to changing gasoline prices abstract we provide empirical evidence that automobile manufacturers use cash incentives to offset how gasoline price fluctuations affect the expected fuel expenses of automobile buyers regressions based on a database of incentives over 2003 to 2006 suggest that on average manufacturers offset 40 of the change in relative fuel costs between vehicles due to gasoline price fluctuations the results highlight that carbon taxes and emissions trading programs likely would generate substantial substitution within vehicle classes and studies that ignore manufacturer discounting likely underestimate consumer demand for fuel economy the results also have implications for the optimal design of feebate programs

voluntary export restraints on automobiles evaluating a trade policy the authors evaluate the voluntary export restraint that was initially placed on exports of automobiles from japan in 1981 they evaluate the impact this policy had on u s consumer welfare firm profits and foregone tariff revenue from its initiation through 1990

price and variety in the spokes model the spokes model of nonlocalized spatial competition provides a new analytical tool for dierentiated oligopoly and a representation of spatial monopolistic competition an increase in the number of rms leads to lower equilibrium prices when consumers have relatively high product valuations but surprisingly to higher equilibrium prices for in termediate consumer valuations new entry alters consumer and social welfare through price market expansion and matching eects with free entry the market may pro vide too many or too few varieties from a social welfare perspective and the equilibrium price remains above marginal cost even when the number of rms is arbitrarily large

when tax incentives drive illicit behavior the manipulation of fuel economy in the automobile industry abstract this study examines and identifies the underlying incentives for falsifying fuel economy on the part of the automobile industry using novel microdata on on road fuel consumption in japan we find a discontinuous increase in the fuel economy gap the disparity between official test results and real world fuel economy of 6 percent at the tax incentive eligibility thresholds further evidence suggests that much of the observed gap remains unexplained by driver or vehicle characteristics and that no gap is observed at similar levels of fuel economy when they are not tied to the large tax incentive eligibility our findings suggest that feebates large incentive schemes based on fuel economy levels may in turn incentivize automakers to cook the books on fuel economy figures

consumer myopia imperfect competition and the energy efficiency gap evidence from the uk refrigerator market abstract the empirical literature on the energy efficiency gap concentrates on demand inefficiencies in the energy using durables markets and finds evidence that consumers underestimate future energy costs when purchasing a new appliance we take a broader view and also consider the impact of imperfect competition using data on the uk refrigerator market 2002 2007 we find that the average energy consumption of appliances sold during this period was only 7 2 higher than what would have been observed under a scenario with a perfectly competitive market and non myopic consumers one reason for this small gap is that market power actually reduces energy use

keeping it fresh strategic product redesigns and welfare abstract product redesigns happen across virtually all types of products yet there is little evidence on the market and welfare effects of redesigns we develop a model of redesign decisions in a dynamic oligopoly model and use it to analyze redesign activity in the u s automobile market we find automobile model redesigns are frequent despite an estimated average cost around 1 billion our estimates also suggest that redesigns lead to large increases in profits and welfare due to the strong preferences consumers have for redesigns we show that welfare would be improved if redesign competition were reduced allowing redesign activity to be more responsive to the planned obsolescence channel the net effect of these changes would reduce total redesigns by roughly 10 increasing total welfare by roughly 3 the high valuation that consumers put on newly designed models drives frequent redesigns and gives automobile manufacturers fairly substantial market power with a 2 to 1 ratio of firm profits to consumer surplus

imported input price and the current account in an optimizing model without capital mobility abstract this paper analyses the effect of an oil price increase in an economy which cannot borrow in the international capital markets current account surpluses and deficits are matched by reserve changes at the central bank it is shown in an optimizing setup that an unanticipated oil price increase worsens the current account and lowers the real interest rate contrary to models which assume perfect capital markets

the accident externality of driving evidence from observance of the jewish sabbath in israel we document and measure an externality of driving whereby a driver s decision to take to the road affects fellow drivers risk of accident because religious jews refrain from driving during the sabbath traffic on israeli roads decreases sharply when the sabbath begins each friday at a precisely defined time before sundown and increases after the sabbath ends on saturday evening at a precisely defined time after sunset using plausibly exogenous variation in traffic volume associated with the sabbath we estimate the effect of traffic volume on the risk of fatal or injurious accident we find that a positive accident externality emerges only at the sabbath exit when traffic volumes are greater remarkably similar results arise when the analysis is confined to non jewish drivers whose travel choices are not bound by the precise timing of the sabbath supporting the interpretation that our findings reflect an externality finally the effect emerges mainly on a class of road sections that is considered highly perilous suggesting that the interaction of traffic volume and road perilousness is important for understanding this issue and shaping implicated policy

investigating the asymptotic properties of import elasticity estimates abstract feenstra 1994 is widely implemented in international trade to estimate elasticities of substitution through a monte carlo experiment simulated estimates suggest substantial biases due to weak instruments however the derivation of the elasticity of substitution drastically mitigates these biases

bilingualism and network externalities the authors develop a model in which the benefit of language acquisition is increasing in the number of individuals who speak the language this gives rise to a network externality and if language acquisition is costly the language acquisition decisions by individuals may be inefficient if the available policy instruments affect all members of a language group homogeneously then policies that effectively subsidize language acquisition are warranted only for the majority language

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

does britain or the united states have the right gasoline tax this paper develops an analytical framework to assess the second best optimal level of gasoline taxation taking into account unpriced pollution congestion and accident externalities as well as interactions with the broader fiscal system we provide calculations of the optimal taxes for the us and the uk under a variety of parameter scenarios under our central parameter values the second best optimal gasoline tax is 1 01 gal for the us and 1 34 gal for the uk current tax rates are much lower than this in the us and higher in the uk the calculations are moderately sensitive to alternative parameter assumptions the congestion externality is the largest component in both nations revenue raising needs also play a significant role as do accident externalities and local air pollution potential welfare gains from reducing the current uk tax rate are estimated at nearly one fourth the production cost of all gasoline used in the uk even larger gains could be achieved by switching to a tax on vehicle miles with equal revenue yield for the us the welfare gains from optimizing the gasoline tax are smaller but those from switching to an optimal tax on vehicle miles are very large

financial liberalization and adjustment the cases of chile and new zealand abstract this paper analyzes macrodynamic adjustments during financial liberalization in chile and new zealand during the adjustment to more open capital accounts in the late 1970s or mid 1980s both countries experienced a real exchange rate appreciation and a collapse of net exports while domestic interest rates slowly converged to international levels this paper develops and estimates a two sector dynamic model with current and time varying parameter techniques the domestic interest rate is relatively more responsive to shocks under imperfect capital mobility while the real exchange rate becomes more responsive under perfect mobility therefore capital account liberalization does not eliminate but rather shifts volatility from the domestic interest rate to the real exchange rate jel e65 f33

energy price shocks household location patterns and housing crises theory and implications abstract the u s housing collapse in 2007 is widely blamed for inducing a financial crisis that spread to the real economy and caused a severe and prolonged downturn this paper develops a model to investigate the role of gasoline price shocks in triggering the housing market collapse and identifies a new channel through which energy price shocks affect the financial market and the macro economy results suggest that unanticipated gasoline price shocks increase the cost of work commutes lower the value of homes away from the city center and increase foreclosure rates as homeowners either cannot afford mortgage payments amid elevated gas expenditures or seek to abandon underwater homes the model predicts that gasoline price shocks disproportionately affect suburban households that face greater exposure due to longer commutes and lower incomes empirical evidence from the 2007 08 housing collapse is presented to corroborate this theory

relaxing cafe foreign direct investment nafta and domestic product standards this paper studies the effects of domestic product standards on the offshoring behaviour of automotive firms in particular we examine an important non tariff barrier to trade within us fuel economy policy the corporate average fuel economy cafe two fleet rule by leveraging the removal of the two fleet rule upon implementation of nafta and exploiting a policy discontinuity based on vehicle characteristics we present evidence that the costs of offshoring were reduced to a larger degree for varieties that were subject to us fuel economy rules specifically we estimate that prices fell between 5 to 10 for varieties subject to the cafe two fleet rule relative to varieties that were exempt from the rule these effects are persistent not present for manufacturers that did not offshore prior to nafta and are robust to variety specific trends these effects also reconcile the post nafta differences in implied compliance costs between cars and trucks for our treatment manufacturer chrysler overall the results highlight the potential costs of regional enforcement of otherwise location neutral product standards which may act as a barrier to natural patterns of efficient specialization resume assouplissement de cafe investissement direct a l etranger alena et standards domestiques des produits ce texte etudie les effets de standards domestiques des produits sur le comportement de sous traitance a l etranger des producteurs automobiles en particulier on examine une importante barriere non tarifaire qui existe le cadre de la politique d economie du carburant des etats unis cafe corporate average fuel economy et sa regle des deux flottes en utilisant le retrait de la regle des deux flottes lors de la mise en oeuvre de l alena et une discontinuite de la politique portant sur les caracteristiques des vehicules on montre que les couts de la delocalisation ont ete reduits d un plus fort degre pour les varietes de vehicules qui etaient sujets aux regles de cafe specifiquement on estime que les prix ont chute de 5 a 10 pour les varietes sujettes aux regles de cafe par rapport aux varietes exemptees de la regle ces effets sont persistants ne s appliquent pas pour les manufacturiers qui ne s etaient pas delocalises avant l alena et robustes face aux tendances dans la specificite des varietes ces effets reconcilient aussi les differences apres alena dans les couts a se conformer des voitures et des camions dans le cas particulier chrysler etudie d un point de vue plus general les resultats soulignent les couts potentiels de l application regionale de regles de standards censement neutres regionalement qui peuvent etre une barriere a un pattern naturel assurant une specialisation plus efficiente

measuring the benefits of foreign product variety with an accurate variety set abstract recent studies have used import data to assess the impact of foreign varieties on domestic prices and welfare we employ a market based data set on the u s automobile market that allows us to define goods varieties at a more precise level as well as discern location of production and ownership of varieties our estimates of price and welfare changes from new varieties in the u s automobile sector are twice as large as standard estimates when using our detailed market based data we also show that new varieties introduced by foreign owned affiliates provided an additional 70 welfare gain during our sample

simpler is better predicting consumer vehicle purchases in the short run abstract when agencies such as the us environmental protection agency epa establish future greenhouse gas emissions standards for new vehicles forecasting future vehicle purchases due to changes in fuel economy and prices provides insight into regulatory impacts we compare predictions from a nested logit model independently developed for us epa to a simple model where past market share predicts future market share using data from model years 2008 2010 and 2016 the simple model outperforms the nested logit model for all goodness of prediction measures for both prediction years including changes in vehicle price and fuel economy increases bias in forecasted market shares this bias suggests price increases are correlated with unobserved increases in vehicle quality changes in preferences or brand specific changes in market size but not cost pass through for 2010 past shares predict better than a nested logit model despite a major shock the economic disruption caused by the great recession observed share changes during this turbulent period may offer upper bounds for policy changes in other contexts the largest observed change in market share across the two horizons is 6 6 for manufacturers in 2016 and 3 4 for an individual vehicle in 2010

to rebate or not to rebate fuel economy standards versus feebates we compare the welfare effects in equilibrium of two environmental regulations that aim at increasing the new cars fleet s average fuel efficiency the fuel economy standards and the feebate policies maintaining the same environmental benefit and tax revenue we simulate the implementation of each policy in france and the united states standard type policies have larger negative welfare effects up to 3 2 times those from the feebate effects on manufacturers are heterogeneous some are better of under the standard regulation the addition of a market to trade levels of fuel efficiency dominates the simple standard regulation but not always the feebate we also consider the attribute based standard technological improvements and the equivalence with fuel taxes as extensions

new vehicle characteristics and the cost of the corporate average fuel economy standard by 2016 the corporate average fuel economy cafe standard will increase by 40 this article focuses on the medium run effects of fuel economy regulation we estimate consumers willingness to pay for vehicle characteristics we employ a novel empirical strategy that accounts for the characteristics endogeneity by using variation of engine models used in vehicle models the results imply that consumers value an increase in power more than an increase in fuel economy simulations of the effects of an increase in the cafe standard suggest that regulatory costs are significantly smaller in the medium run than in the short run

the cost of reducing gasoline consumption high nominal gas prices new awareness of threats to national security and growing concern about global warming have reignited discussion of ways to reduce gasoline consumption in the united states debate centers on changing two policies already in place the federal gas tax and corporate average fuel economy cafe standards two influential recent reports find that increasing the gas tax would attain a given reduction in gas consumption at lower cost than would tightening cafe standards national research council 2002 congressional budget office 2003 the gas tax has this advantage because it encourages not just increases in fuel efficiency but also reductions in miles driven in contrast cafe standards actually encourage more driving because increases in fuel efficiency reduce the cost of gas per mile driven we also compare the costs of the gas tax and cafe standard but take into account interactions with preexisting tax distortions many papers examine the effects of these tax interactions in other contexts but to our knowledge none of them considers the cafe standard see e g lars bovenberg and ruud de mooij 1994 ian parry 1995 lawrence goulder 1995 bovenberg and goulder 1996 parry et al 1999 don fullerton and gilbert metcalf 2001 these interactions reduce the cost of the gas tax but increase the cost of cafe thus expanding the cost advantage enjoyed by the gas tax this difference does not arise because the gas tax raises revenue while the cafe standard does not rather this result is similar to that in west and williams 2004a which showed that since gasoline and leisure are relative complements raising the gas tax will increase labor supply generating additional efficiency gains in this paper we estimate a consumer demand system using data from the consumer expenditure survey and the california air resources board and find that miles driven and leisure are relative complements thus the gas tax encourages labor supply by raising the cost per mile driven producing an additional efficiency gain conversely because cafe reduces the cost per mile it discourages labor supply and yields an additional efficiency loss while the induced changes in labor supply are tiny relative to the labor market they are still substantial relative to the gas market and thus have a dramatic effect on the relative costs of the two policies our point estimates imply that they reduce the social marginal cost of the gas tax starting from the status quo gas tax rate and ignoring the benefits of reduced gas consumption by almost 30 percent while increasing the marginal cost of cafe by nearly 60 percent this result implies that the case for raising the gas tax rather than tightening the cafe standard is far stronger than previous studies suggest indeed it strongly suggests that any tightening at all of the cafe standard would lower welfare unless the benefits of reduced gas consumption have been seriously underestimated

biofuel subsidies versus the gas tax the carrot or the stick abstract this paper provides an analytical framework to examine the relative efficiencies of a revenue neutral biofuel subsidy and a gas tax in the presence of pre existing distortions and growing substitutability between fuels both policies are set to achieve a targeted reduction in gasoline use at the state level the model is then calibrated for a small open economy such as illinois which is one of the largest producers of biofuels such as ethanol in the u s the main result of the paper shows that raising the biofuel subsidy use reduces overall welfare by more than a higher gas tax both aimed to achieve a targeted reduction in pure gasoline the relative efficiency of the higher gas tax is primarily due to it exacerbating the pre existing distortion in the biofuel market by less than the subsidy moreover for current parameter estimates welfare improving policy combinations for achieving a targeted amount of energy security are higher gas taxes combined with lower biofuel subsidies and a lower tax on income however the preference for a gasoline labor tax swap shrinks as the elasticity of substitution between the two fuels rises

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

gasoline price uncertainty and the design of fuel economy standards abstract what are the implications of gasoline price volatility for the design of fuel economy policies i show that this problem has a strong parallel to weitzman s 1974 classic model of using price or quantity controls to regulate an externality changes in fuel prices act as shocks to the marginal cost of complying with the standard assuming constant marginal damages from fuel consumption an application of weitzman 1974 implies that a fixed fuel economy standard reduces expected welfare relative to a price policy such as a feebate or equivalently a fuel economy standard that is indexed to the price of gasoline when the regulator is constrained to use a fixed standard i show that the usual approach to setting the standard equate expected marginal compliance cost to marginal damage is likely to be sub optimal because the standard may not bind if the realized gasoline price is sufficiently high instead the optimal fixed standard will be relatively relaxed and may be non binding even at the expected gasoline price finally i show that although an attribute based standard allows vehicle choices to flexibly respond to gasoline price shocks the resulting distortions imply that the optimal fuel economy standard is not attribute based

fuel economy car class mix and safety fuel economy standards change the composition of the vehicle fleet potentially influencing accident fatality risks i estimate the direction and magnitude of this impact introducing a correction for selection on driver behavior a policy application using my new estimates shows that the present distinction between light trucks and cars in fuel economy rules has very negative consequences for overall safety each mpg increment to the standard results in an additional 150 fatalities per year in expectation my correction for selection is pivotal in this finding i then demonstrate a simple alternative regulation that can produce near zero changes in accident fatalities

quantifying the premium externality of the uninsured in some insurance markets the uninsured can generate a negative externality on the insured leading insurance companies to pass on costs as higher premia using a novel panel data set and a staggered policy change that exogenously varied the rate of uninsured drivers at the county level in california we quantitatively investigate the effect of uninsured motorists on automobile insurance premia consistent with predictions of theory we find uninsured drivers lead to higher insurance premia specifically a 1 percentage point increase in the rate of uninsured drivers raises insurance premia by between 1 2 we also discuss corrective pigouvian taxes

the effects of the corporate average fuel efficiency standards in the us this paper examines the effects of the corporate average fuel economy standards cafe on automobile sales prices and fuel consumption first a discrete choice model of automobile demand and a continuous model of vehicle utilization are estimated using micro data from the consumer expenditure survey for 1984 1990 next the demand side model is combined with a model of oligopoly and product differentiation on the supply side with these elements in place the effects of the cafe regulation are assessed through simulations and compared to the effects of alternative policy instruments such as an increase in gasoline tax

the geography of trade and technology shocks in the united states abstract this paper explores the geographic overlap of trade and technology shocks across local labor markets in the united states regional exposure to technological change as measured by specialization in routine task intensive production and clerical occupations is largely uncorrelated with regional exposure to trade competition from china while the impacts of technology are dispersed throughout the united states the impacts of trade tend to be more geographically concentrated owing in part to the spatial agglomeration of labor intensive manufacturing our findings highlight the feasibility of separately identifying the impacts of recent changes in trade and technology on us regional economies

what do consumers believe about future gasoline prices a full understanding of how gasoline prices affect consumer behavior frequently requires information on how consumers forecast future gasoline prices we provide the first evidence on the nature of these forecasts by analyzing two decades of data on gasoline price expectations from the michigan survey of consumers we find that average consumer beliefs are typically indistinguishable from a no change forecast justifying an assumption commonly made in the literature on consumer valuation of energy efficiency we also provide evidence on circumstances in which consumer forecasts are likely to deviate from no change and on significant cross consumer forecast heterogeneity

the accident externality from driving we estimate auto accident externalities more specifically insurance externalities using panel data on state average insurance premiums and loss costs externalities appear to be substantial in traffic dense states in california for example we find that the increase in traffic density from a typical additional driver increases total statewide insurance costs of other drivers by 1 725 3 239 per year depending on the model high traffic density states have large economically and statistically significant externalities in all specifications we check in contrast the accident externality per driver in low traffic states appears quite small on balance accident externalities are so large that a correcting pigouvian tax could raise 66 billion annually in california alone more than all existing california state taxes during our study period and over 220 billion per year nationally

the demand for ethanol as a gasoline substitute abstract this paper estimates household preferences for ethanol e85 as a gasoline e10 substitute i develop a theoretical model linking the shape of the ethanol demand curve to the underlying distribution among households of willingness to pay for ethanol i estimate the model using instrumental variables techniques and data from many retail fueling stations i find that a 0 10 per gallon increase in ethanol s price relative to gasoline leads to a 12 16 decrease in the quantity of ethanol demanded my findings imply that preferences for ethanol are heterogeneous and that a substantial fraction of households are willing to pay a premium for the fuel this reduces substantially the simulated efficiency cost of an ethanol content standard since some households choose ethanol without large subsidies mitigating deadweight losses

rational inattention and energy efficiency abstractthis paper argues that it will often be rational for consumers to pay limited attention to energy efficiency when choosing among energy consuming durable goods like automobiles or home appliances the reason is that the proper valuation of energy efficiency requires time and effort but differences in efficiency across products will rarely be pivotal to choice when consumers have strong preferences regarding other product attributes the paper first explains why proper valuation of efficiency is difficult even in the presence of government energy labels it next develops a model that shows how to value additional information about energy efficiency in a discrete choice context it then uses data on automobiles to show that consumers experience only small welfare losses when forced to choose a car without detailed information about fuel costs finally the paper discusses the implications of rational inattention for both economic research and public policy

what is the optimal speed limit on freeways abstract when choosing his speed a driver faces a trade off between private benefits time savings and private costs fuel cost and own damage and injury driving faster also has external costs pollution adverse health impacts and injury to other drivers this paper uses large scale speed limit increases in the western united states in 1987 and 1996 to address three related questions first do the social benefits of raising speed limits exceed the social costs second do the private benefits of driving faster exceed the private costs third what is the optimal speed limit i find that a 10 mph speed limit increase on highways leads to a 3 4 mph increase in travel speed 9 15 more accidents 34 60 more fatal accidents and elevated pollutant concentrations of 14 24 carbon monoxide 8 15 nitrogen oxides 1 11 ozone and 9 higher fetal death rates around the affected freeways using these estimates i find that the social costs of speed limit increases are two to seven times larger than the social benefits in contrast many individual drivers would enjoy a net private benefit from driving faster privately a value of a statistical life vsl of 6 0 million or less justifies driving faster but the social planner s vsl could be at most 0 9 2 0 million to justify higher speed limits i conclude that the optimal speed limit was lower but not much lower than 55 mph

the impact of english dominance on literature and welfare abstract market forces privilege the translation of english fiction and poetry into other languages and thus pose a danger for the accumulation of capital in the form of literature a variety of source languages in translations makes literary capital more valuable as such further the importance of writing in english in order to reach a world audience lowers the pool of talent capable of contributing to literature the paper starts with a model of the world publishing market that explains why the dominant language acquires a disproportionate share of translations then the reasoning proceeds from theory to the empirical evidence

markets and linguistic diversity abstract producers of cultural goods and media products can make their specific contents available to their audiences and readerships only through a particular language the choice of language is a non trivial decision in markets with bilingual or multilingual consumers in this paper i argue that the very existence of bilingual consumers may seriously bias market outcomes against minority languages in particular i show that the level of linguistic diversity determined by profit maximizing firms tends to be inefficiently low except when and where the cost of producing a second linguistic version becomes sufficiently low thus the model provides an efficiency argument supporting policies that protect the presence of minority languages in these markets

vehicle miles not traveled fuel economy requirements vehicle characteristics and household driving abstract a major concern with addressing the negative externalities of gasoline consumption by regulating fuel economy rather than increasing fuel taxes is that households respond by driving more this paper exploits a discrete threshold in the eligibility for cash for clunkers to show that fuel economy restrictions lead households to purchase vehicles that have lower cost per mile but are also smaller and lower performance whereas the former effect can increase driving the latter effect can reduce it results indicate that these households do not drive more suggesting that behavioral responses do not necessarily undermine the effectiveness of fuel economy restrictions at reducing gasoline consumption

are energy efficiency standards justified abstract this paper develops an analytical framework for comparing the welfare effects of energy efficiency standards and pricing policies for reducing gasoline electricity and nationwide carbon emissions the model is parameterized with us data and includes key externalities in the energy transportation sectors and possible underinvestment in energy efficiency due to misperceptions over energy savings even with large misperceptions the extra welfare gains from complementing efficient pricing policies with energy efficiency standards are zero for reducing gasoline and 5 percent for reducing electricity and when viewed as substitutes these standards forgo 60 percent or more of the potential welfare gains from corresponding pricing policies a combination of energy efficiency and emissions standards is more than three times as costly as carbon pricing when there is no misperception over energy savings and even with large misperceptions combining carbon pricing with gasoline electricity taxes is better than combining it with energy efficiency standards

fuel price impacts and compliance costs associated with the renewable fuel standard rfs abstract us policy instruments concerning vehicle biofuels are currently being revisited for example as part of an on going annual renewable fuel standard rfs implementation the environmental protection agency epa requests stakeholder feedback analysis of programmatic effects including impacts on gasoline diesel prices and compliance costs motivated by the need for regulatory specific feedback a novel regional market model is developed that quantifies price impacts across different regional markets for a number of market variables including several types of compliance certificates known as renewable identification numbers rins an analysis of the most recent epa proposal suggests that the d4 biodiesel rin price could rise to 1 00 rin sensitivity results show that the d4 rin price is highly sensitive to soybean oil prices while d5 d6 rin prices are most sensitive to the volume of e85 consumed it was found that the projected costs associated with the rfs in 2017 could be reduced by approximately 50 if an additional 600 million gallons of e85 were consumed the analysis also suggests that the rfs does not dramatically affect the retail price of either gasoline and diesel fuels paid by consumers

comparing alternative policies to reduce traffic accidents abstract this paper derives and implements formulas for the welfare effects of uniform mileage taxes gasoline taxes per mile insurance premiums and mileage taxes differentiated across vehicle and driver groups for reducing the external costs of passenger vehicle accidents the average external accident cost is estimated at 2 2 6 6 cents per mile accidents costs differ substantially across driver groups but only moderately across vehicles groups annual welfare gains from a mileage tax equal to marginal external costs for each driver vehicle group are 9 4 billion in the benchmark case the uniform mileage tax and per mile insurance reform can achieve 76 and 65 of this welfare gain respectively while the gasoline tax can achieve only 28 of the welfare gain unlike other policies the gasoline tax induces costly improvements in average fleet fuel economy that have little effect on reducing external costs

automobile externalities and policies this paper discusses the nature and magnitude of externalities associated with automobile use including local and global pollution oil dependence traffic congestion and traffic accidents it then discusses current federal policies affecting these externalities including fuel taxes fuel economy and emissions standards and alternative fuel policies summarizing insofar as possible the welfare effects of those policies finally we discuss emerging pricing policies including congestion tolls and insurance reform and summarize the appropriate combination of policies to address automobile externalities

policy watch the economics of fuel economy standards one of the most hotly contested of all energy policy issues involves corporate average fuel economy or cafe standards for new cars and light duty trucks tighter standards would reduce gasoline consumption and hence both greenhouse gas emissions as well as this country s vulnerability to oil price shocks but they would also increase the price of new vehicles worsen traffic congestion and depending on how they are phased in possibly even reduce occupant safety these effects are amenable to economic analysis and we review the evidence to date bearing on this interesting and important question

automobile quality choice under pollution control regulation in this paper we develop a modified quality choice model to study the effects of various mobile source air pollution control regulations we have a single producer that supplies a fixed number of car types two but faces a spectrum of consumers differing in their valuation of car quality the car manufacturer chooses the quality levels of the two car types as well as the sales mix between the two types and the size of the market it wishes to supply by endogenizing both the sales mix and the market size while still allowing quality to be a choice variable we are able to more completely analyze the impact of any car pollution control regulation existing studies of this impact either focus on the model line adjustment response shifts in the quality array or on the price adjustment response changes in the sales mix and market size in allowing for both the model line and the price adjustment options we find that the corporate average fuel efficiency cafe standard is unambiguously welfare superior to the low emission vehicle quantity constraint lev and zero emission vehicle zev programs we also show that the effects of the cafe standard are not equivalent to those of a fuel tax as previously found and that for a given car pollution target the former is preferred to the latter

the effect of vehicle fuel economy standards on technology adoption abstract many countries are tightening passenger vehicle fuel economy standards this paper provides the first empirical evidence on the effects of fuel economy standards on technology adoption we investigate changes in the rate and direction of technology adoption that is the extent to which technology is used to increase fuel economy at the expense of other vehicle attributes we find that recent changes in u s and european standards have both increased the rate of technology adoption and affected the direction of technology adoption producers reduced horsepower and torque compared to a counterfactual in which fuel economy standards remained unchanged we estimate opportunity costs from reduced horsepower and torque to be economically significant relative to the gains from fuel savings

the market impact and the cost of environmental policy evidence from the swedish green car rebate we quantify the effects of the swedish gcr a program to reduce oil dependence and greenhouse gas emissions in the automobile industry we find the gcr to increase the market shares of green cars and its cost to be 109 tonco2 saved thus 5 times the price of an emission permit since the main green cars in sweden are ffvs flexible fuel vehicles which can switch between petrol gasoline and ethanol we also account for fuel choice which increases the cost of the program finally we show that consumers would have purchased ffvs regardless of the rebate provided by the gcr

the economics of attribute based regulation theory and evidence from fuel economy standards in many countries fuel economy standards mandate that vehicles meet a certain fuel economy but heavier or larger vehicles are allowed to meet a lower standard this has the perverse implication of allowing automakers to meet standards either by improving fuel economy or by increasing weight which lowers fuel economy and increases externalities related to accidents this is but one example of an attribute based regulation in which the regulation imposed on a product depends on both the externality it creates and some other attribute attribute basing potentially motivates rms and individuals to strategically alter the attribute thereby endogenously altering the stringency of the regulation this paper develops a theory of attribute basing to demonstrate the costs and benets of its use the paper then empirically examines the consequences of attribute based fuel economy standards in japan where fuel economy standards are a notched attribute based function of vehicle weight we use cross sectional and panel techniques to demonstrate that attribute based regulation has signicantly altered the distribution of vehicle weight in japan where 10 of vehicles bunch at weight notches for cars whose weight is altered in response to the policy we estimate that the alteration generates a welfare loss from the exacerbation of weight related externalities of 1 500 per unit sold which translates into a 700 million annual loss across the japanese auto market

predicting gasoline prices using michigan survey data abstract this study investigates the predictive power of michigan surveys of consumers msc data for gasoline prices specifically we utilize the msc data on both expected inflation and consumer sentiment to construct a vector autoregressive var model for forecasting gasoline prices for 2003 2014 our findings indicate that the var forecasts are superior to the comparable benchmark forecasts obtained from a univariate integrated moving average ma model in terms of both predictive information content and directional accuracy as such we conclude that the msc data on both expected inflation and consumer sentiment have significant predictive information for gasoline prices further inspection reveals that the var forecasts are particularly accurate for the period since 2008 reinforcing the notion that consumers are economically rational

are consumers myopic evidence from new and used car purchases abstract we investigate whether car buyers are myopic about future fuel costs we estimate the effect of gasoline prices on short run equilibrium prices of cars of different fuel economies we then compare the implied changes in willingness to pay to the associated changes in expected future gasoline costs for cars of different fuel economies in order to calculate implicit discount rates using different assumptions about annual mileage survival rates and demand elasticities we calculate a range of implicit discount rates similar to the range of interest rates paid by car buyers who borrow we interpret this as showing little evidence of consumer myopia jel d12 h25 l11 l62 l71 l81

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

policy shocks and market based regulations evidence from the renewable fuel standard the renewable fuel standard mandates large increases in u s biofuel consumption and is implemented using tradable compliance credits known as rins in early 2013 rin prices soared causing the regulator to propose reducing future mandates we estimate empirically the effect of three policy shocks that reduced the expected mandates in 2013 we find that the largest of these shocks decreased the value of the fuel industry s 2013 compliance obligation by 7 billion we then study the effects of the shocks on commodity markets and the market value of publicly traded biofuel firms results show that the burden of the mandate reductions fell primarily on advanced biofuel firms and commodity markets of the marginal compliance biofuel we argue that the policy shocks reduced the incentive to invest in the technologies required to meet the future objectives of the rfs and discuss alternative policy designs to address the problems that arose in 2013

dynamic effects of rising oil prices on consumer energy prices in canada and the united states evidence from the last half a century abstract this paper examines the dynamic relationship between the price of crude oil and the cpi energy price sub index in canada and the u s using a markov regime switching model and the bai perron sequential method since these two series are cointegrated during the sample period january 1961 june 2013 a short run dynamic model is thus estimated for each country in which all coefficients and the error variance terms can freely switch over time between two values prevailing in regimes 0 and 1 previous studies indicate that the price of crude oil does not currently affect the aggregate cpi as much as it did in the 1970s this finding is not disputed in this paper however the sequentially determined break date as well as the time varying regime switching probabilities point to two new findings first the marginal effects of changes in oil price on consumer energy prices not the aggregate cpi have consistently increased and become more instantaneous for both countries after the western u s energy crisis of 2000 second the speed of adjustment proxied by different error correction coefficients has also risen particularly for the u s therefore oil prices exert far more positive and immediate impacts on energy costs in the post rather than pre 1999 periods

car notches strategic automaker responses to fuel economy policy notches where small changes in behavior lead to large changes in a tax or subsidy gure prominently in many policies but have been rarely examined by economists in this paper we analyze a class of notches associated with policies aimed at improving vehicle fuel economy we provide several pieces of evidence showing that automakers respond to notches in fuel economy policy by precisely manipulating fuel economy ratings so as to just qualify for more favorable treatment we then describe the welfare consequences of this behavior and derive a welfare summary statistic applicable to many contexts