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Is demand for polluting goods manageable? an econometric study of car ownership and use in Mexico

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  • Eskeland, Gunnar S.
  • Feyzioglu, Tarhan N.
  • DEC

Abstract

Charging for social marginal costs is efficient regardless of price elasticities, but the importance of getting prices"right"is greater the more manageable, or elastic, the demand. In efficient pollution control programs, options to make cars cleaner are combined optimally with demand conservation. The roles played by"cleaner cars"as compared with"fewer trips"are determined by empirical parameters: cheap, clean technologies would imply a great role for cleaner cars, while high demand elasticities lead to a greater role for demand reduction. In seminal research, evisence was found to support the hypothesis that demand for commodities such as gasoline should have lower price elasticities and higher income elasticities in developing than in industrial countries. The authors estimate a model of gasoline demand and car ownership in Mexico, using a panel of annual observations by state. Key features they introduce are instrumental variables on different data and the treatment of (1) possible dynamics, (2) measurement errors in the data, and (3) unobserved characteristics in individual states. They use tests of serial correlation in the residuals to model the dynamics properly. The resulting model is one of almost immediate adjustment, with a short-term price elasticity for gasoline close to the long-term estimate of -0.8. The model displays elasticities that are lower (for income) and higher (for price) than those hypothesized, and are within the range of elasticities found in industrial countries. Byproducts of the model: The elasticity of car purchases with respect to gasoline prices is positive. Scrappage decisions are affected by income and by car and gasoline prices. And these elasticities are not significantly different in the richer states. For policy purposes, these findings do not support"elasticity pessimism"The use of car services is sensitive to pricing, which suggests that consumers, for some of their demand, have reasonably good alternatives to car services. Consideration of external costs - such as accidents, congestion, air pollution, and road damage - thus involve considerable demand conservation.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1309.

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Date of creation: 30 Jun 1994
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Handle: RePEc:wbk:wbrwps:1309

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Keywords: Inequality; Transport and Environment; Energy and Environment; Economic Theory&Research; Environmental Economics&Policies;

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References

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  1. Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
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  17. Berndt, Ernst R. & Botero, German, 1985. "Energy demand in the transportation sector of Mexico," Journal of Development Economics, Elsevier, vol. 17(3), pages 219-238, April.
  18. Faiz, Asif & Sinha, Kumares & Walsh, Michael & Varma, Amiy, 1990. "Automotive air pollution : issues and options for developing countries," Policy Research Working Paper Series 492, The World Bank.
  19. W. Kip Viscusi & Wesley A. Magat & Alan Carlin & Mark K. Dreyfus, 1994. "Environmentally Responsible Energy Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 23-42.
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Citations

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Cited by:
  1. Storchmann, Karl, 2005. "Long-Run Gasoline demand for passenger cars: the role of income distribution," Energy Economics, Elsevier, vol. 27(1), pages 25-58, January.
  2. HAYNES Goddard, 1997. "Using Tradeable Permits to Achieve Sustainability in the World's Large Cities: Policy Design Issues and Efficiency Conditions for Controlling Vehicle Emissions, Congestion and Urban Decentralization w," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(1), pages 63-99, July.
  3. Jie Lin & Cynthia Chen & Debbie Niemeier, 2008. "An analysis on long term emission benefits of a government vehicle fleet replacement plan in northern illinois," Transportation, Springer, vol. 35(2), pages 219-235, March.
  4. Parry, Ian W.H. & Timilsina, Govinda R., 2009. "Pricing externalities from passenger transportation in Mexico city," Policy Research Working Paper Series 5071, The World Bank.
  5. Eskeland, Gunnar S. & Jian Xie, 1998. "Acting globally while thinking locally : is the global environment protected by transport emission control programs?," Policy Research Working Paper Series 1975, The World Bank.
  6. Eskeland, Gunnar S., 2000. "Environmental protection and optimal taxation," Policy Research Working Paper Series 2510, The World Bank.
  7. Crôtte, Amado & Noland, Robert B. & Graham, Daniel J., 2010. "An analysis of gasoline demand elasticities at the national and local levels in Mexico," Energy Policy, Elsevier, vol. 38(8), pages 4445-4456, August.
  8. Karl Storchmann, 2004. "On the Depreciation of Automobiles: An International Comparison," Transportation, Springer, vol. 31(4), pages 371-408, November.
  9. Swait, Joffre & Eskeland, Gunnar S., 1995. "Travel mode substitution in Sao Paulo : estimates and implications for air pollution control," Policy Research Working Paper Series 1437, The World Bank.
  10. Eskeland, Gunnar S. & Mideksa, Torben K., 2008. "Transportation fuel use, technology and standards: The role of credibility and expectations," Policy Research Working Paper Series 4695, The World Bank.
  11. Eskeland, Gunnar S., 2000. "Externalities and production efficiency," Policy Research Working Paper Series 2319, The World Bank.

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