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Evaluating US Fuel Economy Standards in a Model with Producer and Household Heterogeneity

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  • Mark R. Jacobsen
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    Abstract

    This paper employs an empirically estimated model to study the equilibrium effects of an increase in the US corporate average fuel economy (CAFE) standards. I identify and model heterogeneity across firms and find that the profit impacts of CAFE fall almost entirely on domestic producers. The welfare analyses consider the simultaneous household decision of vehicle and miles traveled, allowing direct comparison with a gasoline tax. Finally, I consider dynamic impacts in the used car market. I find these comprise nearly half the gross welfare cost of CAFE and fall disproportionately on low-income households. Contrary to previous results, the overall welfare costs are regressive. (JEL H24, L51, L62)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.5.2.148
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    File URL: http://www.aeaweb.org/aej/pol/data/2011-0098_data.zip
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

    Volume (Year): 5 (2013)
    Issue (Month): 2 (May)
    Pages: 148-87

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    Handle: RePEc:aea:aejpol:v:5:y:2013:i:2:p:148-87

    Note: DOI: 10.1257/pol.5.2.148
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    References

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    1. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 735-757, March.
    2. Kenneth A. Small & Kurt Van Dender, 2007. "Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 25-52.
    3. Parry, Ian W.H. & Walls, Margaret & Harrington, Winston, 2007. "Automobile Externalities and Policies," Discussion Papers dp-06-26, Resources For the Future.
    4. Soren T. Anderson & James M. Sallee, 2009. "Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," Working Papers 0901, Harris School of Public Policy Studies, University of Chicago.
    5. Thomas Klier & Joshua Linn, 2012. "New‚Äźvehicle characteristics and the cost of the Corporate Average Fuel Economy standard," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 186-213, 03.
    6. Goldberg, Pinelopi Koujianou, 1998. "The Effects of the Corporate Average Fuel Efficiency Standards in the US," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 1-33, March.
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    Cited by:
    1. Linn, Joshua, 2013. "The Rebound Effect for Passenger Vehicles," Discussion Papers dp-13-19-rev, Resources For the Future.
    2. Klier, Thomas & Linn, Joshua, 2013. "Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards," Discussion Papers dp-13-40, Resources For the Future.

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