Optimal policy instruments for externality-producing durable goods under time inconsistency
By: Garth Heutel
Contributors: National Bureau of Economic Research
Series: NBER working paper series -- working paper 17083; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17083.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "When consumers exhibit present bias and are time-inconsistent, the standard solution to market failures caused by externalities-Pigouvian pricing-is suboptimal.  I investigate policies aimed at externalities for time-inconsistent consumers.  Welfare-maximizing policy in this case includes an instrument to correct the externality and an instrument to correct the present bias.  Either instrument can be an incentive-based policy or a command-and-control policy.  Calibrated to the US automobile market, simulation results from a model with time-inconsistent consumers suggest that the second-best gasoline tax is 18%-30% higher than marginal external damages.  These simulations also suggest that social welfare is maximized with a gasoline tax set about equal to marginal external damages and a fuel economy tax that increases the price of an average non-hybrid car by about $750-$2200 relative to the price of an average hybrid car"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 8/30/2011.

Includes bibliographical references.

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