Title: Optimal policy instruments for externality-producing durable goods under time inconsistency
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.