Environmental Economics

Optimal Regulation of Automobile Emissions in Static and Dynamic Settings

  • Abstract
    In this project, the investigators will study two topic areas in the economics of automobile emission regulation. First, they will analyze an integrated model of fuel content, automobile specification , and consumer mileage choices in competitive markets, characterizing optimal regulatory policies when emissions cannot be taxed directly, consumer mileage choices cannot be directly observed and taxed, and fuel taxes alternately are and are not automobile-specific. Some questions that will be addressed in this study include the following: (1) How does the need to provide appropriate consumer mileage choice incentives affect the optimal regulation of automobile features (including size, fuel economy, power, and emissions abatement equipment), fuel content, and the fuel tax? (2) Since consumers who like to drive more create a greater social cost of emissions than do others, how can be government force these consumers to internalize some of this social cost and thereby elicit their choice of more pollution-mitigating automobile attributes, such as higher levels of fuel economy and abatement equipment? (3) Should per-mile emissions standards be constant across automobiles or should there be more stringent standards (or higher taxes) on automobiles that one can anticipate will be driven by consumers who tend to drive more? If so, how can this be achieved? Second, the project will develop and analyze dynamic models of consumer automobile replacement decisions. Participants will study various policy measures' effects on consumers' choices of replacement age, fuel economy, average fuel consumption over the life of an automobile, and average emissions. Among policy measures that will be considered are (1) taxes on gasoline, (3) lump-sum automobile replacement subsidies, (3) different types and levels of automobile retirement subsidies, and (4) regulations of the Corporate Average Fuel Economy (CAFE) type. Further work will turn the implications of consumers' replacement choice problems for the optimal regulation of automobile emissions.
  • Metadata
    Principal Investigators:
    Innes, Robert
    Technical Liaison:
    Research Organization:
    Arizona, University of
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