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Vehicle Scrappage and Gasoline Policy

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  • Mark R. Jacobsen
  • Arthur A. van Benthem
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    Abstract

    We estimate the sensitivity of scrap decisions to changes in used car values – the "scrap elasticity" – and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities will tend to produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the elasticities we estimate suggest that 13-23% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19055.

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    Date of creation: May 2013
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    Handle: RePEc:nbr:nberwo:19055

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    1. Atif Mian & Amir Sufi, 2012. "The Effects of Fiscal Stimulus: Evidence from the 2009 Cash for Clunkers Program," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1107-1142.
    2. Hunt Allcott & Nathan Wozny, 2012. "Gasoline Prices, Fuel Economy, and the Energy Paradox," NBER Working Papers 18583, National Bureau of Economic Research, Inc.
    3. Robert W. Hahn, 1995. "An Economic Analysis of Scrappage," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 222-242, Summer.
    4. Gruenspecht, Howard K, 1982. "Differentiated Regulation: The Case of Auto Emissions Standards," American Economic Review, American Economic Association, American Economic Association, vol. 72(2), pages 328-31, May.
    5. 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, International Association for Energy Economics, vol. 0(Number 1), pages 25-52.
    6. Christopher R. Knittel & Ryan Sandler, 2013. "The Welfare Impact of Indirect Pigouvian Taxation: Evidence from Transportation," NBER Working Papers 18849, National Bureau of Economic Research, Inc.
    7. Lucas W. Davis & Matthew E. Kahn, 2010. "International Trade in Used Vehicles: The Environmental Consequences of NAFTA," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 2(4), pages 58-82, November.
    8. Shanjun Li & Roger von Haefen & Christopher Timmins, 2008. "How Do Gasoline Prices Affect Fleet Fuel Economy?," NBER Working Papers 14450, National Bureau of Economic Research, Inc.
    9. Goulder, Lawrence H. & Jacobsen, Mark R. & van Benthem, Arthur A., 2012. "Unintended consequences from nested state and federal regulations: The case of the Pavley greenhouse-gas-per-mile limits," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 187-207.
    10. Meghan R. Busse & Christopher R. Knittel & Florian Zettelmeyer, 2013. "Are Consumers Myopic? Evidence from New and Used Car Purchases," American Economic Review, American Economic Association, American Economic Association, vol. 103(1), pages 220-56, February.
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