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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.

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 reaso
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  • Eskeland, Gunnar S. & Feyzioglu, Tarhan N., 1997. "Is demand for polluting goods manageable? An econometric study of car ownership and use in Mexico," Journal of Development Economics, Elsevier, vol. 53(2), pages 423-445, August.
  • Handle: RePEc:eee:deveco:v:53:y:1997:i:2:p:423-445
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    1. Ufuk Demiroglu & Caglar Yunculer, 2016. "Estimating light-vehicle sales in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 16(3), pages 93-108.
    2. 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.
    3. Gunnar S. Eskeland & Jian Xie, 1998. "Acting Globally while Thinking Locally: Is the Global Environment Protected by Transport Emission Control Programs?," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 385-411, November.
    4. 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.
    5. 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.
    6. Díaz, Araceli Ortega & Medlock, Kenneth B., 2021. "Price elasticity of demand for fuels by income level in Mexican households," Energy Policy, Elsevier, vol. 151(C).
    7. Karl Storchmann, 2004. "On the Depreciation of Automobiles: An International Comparison," Transportation, Springer, vol. 31(4), pages 371-408, November.
    8. Galindo, Luis Miguel & Samaniego, Joseluis & Ferrer, Jimy & Alatorre, José Eduardo & Reyes, Orlando, 2016. "Cambio climático, políticas públicas y demanda de energía y gasolinas en América Latina: un meta-análisis," Documentos de Proyectos 718, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. José M. Labeaga & Xavier Labandeira & Xiral López-Otero, 2018. "Energy Tax Reform and Poverty Alleviation in Mexico," Working Papers 1801, Universidade de Vigo, Departamento de Economía Aplicada.
    10. Eskeland, Gunnar S., 2000. "Externalities and production efficiency," Policy Research Working Paper Series 2319, The World Bank.
    11. 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, Springer;European Association of Environmental and Resource Economists, vol. 10(1), pages 63-99, July.
    12. 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.
    13. Eskeland, Gunnar S., 2000. "Environmental protection and optimal taxation," Policy Research Working Paper Series 2510, The World Bank.
    14. 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.
    15. Sun, Cong & Zheng, Siqi & Wang, Rui, 2014. "Restricting driving for better traffic and clearer skies: Did it work in Beijing?," Transport Policy, Elsevier, vol. 32(C), pages 34-41.
    16. Thomas M. Fullerton, Jr. & Jorge A. Ibarra Salazar & Mario Elizalde, 2015. "Microeconomic Gasoline Consumption Anomalies in Mexico: 1997-2007," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(4), pages 709-722, April.
    17. Xian Zhang & Qinglong Wang & Weina Qin & Limei Guo, 2019. "Sustainable Policy Evaluation of Vehicle Exhaust Control—Empirical Data from China’s Air Pollution Control," Sustainability, MDPI, Open Access Journal, vol. 12(1), pages 1-18, December.
    18. Ryan, Lisa & Ferreira, Susana & Convery, Frank, 2009. "The impact of fiscal and other measures on new passenger car sales and CO2 emissions intensity: Evidence from Europe," Energy Economics, Elsevier, vol. 31(3), pages 365-374, May.
    19. 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.

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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