Effective Scrappage Subsidies
AbstractIt is a common practice for governments to offer scrappage subsidies in order to stimulate the early removal of used cars and modify the distribution of vehicle holdings. In this paper, we analyze the market implications of such subsidies when producers have market power and face competition from a secondary used car market. One key result is that, with market power, a subsidy can induce scrappage even if it pays less than the price of a used car in the absence of the subsidy. We provide a full characterization of the effects of scrappage subsidies on primary and secondary markets for the case of a monopoly, and show that the subsidy that maximizes aggregate welfare lowers prices in the used car market. Our results contrast with the predictions derived from a model with perfect competition.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.
Volume (Year): 7 (2007)
Issue (Month): 1 (February)
Contact details of provider:
Web page: http://www.degruyter.com
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Miravete, Eugenio J & Moral Rincón, Maria J, 2009. "Qualitative Effects of Cash-For-Clunkers Programs," CEPR Discussion Papers 7517, C.E.P.R. Discussion Papers.
- Leheyda, Nina & Verboven, Frank, 2013. "Scrapping subsidies during the financial crisis: evidence from the Europe," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/413445, Katholieke Universiteit Leuven.
- Ashok Kaul & Gregor Pfeifer & Stefan Witte, 2012. "The incidence of Cash for Clunkers: an analysis of the 2009 car scrappage scheme in Germany," ECON - Working Papers 068, Department of Economics - University of Zurich.
- Chen, Jiawei & Esteban, Susanna & Shum, Matthew, 2010. "Do sales tax credits stimulate the automobile market?," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 397-402, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.