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Automobile fuel efficiency policies with international innovation spillovers


  • Philippe Barla
  • Stef Proost


In this paper, we explore automobile fuel efficiency policies in the presence of two externalities i) a global environmental problem and ii) international innovation spillovers. Using a simple model with two regions, we show that both a fuel tax and a tax on vehicles based on their fuel economy rating are needed to decentralize the first best. We also show that if policies are not coordinated between regions, the resulting gas taxes will be set too low and each region will use the tax on fuel rating, to reduce the damage caused by foreign drivers. If standards are used instead of taxes, we find that spillovers may alleviate free-riding. Under some conditions, a strict standard in one region may favour the adoption of a strict standard in the other one.

Suggested Citation

  • Philippe Barla & Stef Proost, 2008. "Automobile fuel efficiency policies with international innovation spillovers," Working Papers Department of Economics ces0817, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces0817

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    References listed on IDEAS

    1. Wolfgang Buchholz & Alexander Haupt & Wolfgang Peters, 2005. "International Environmental Agreements and Strategic Voting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 175-195, March.
    2. Robert Innes, 2006. "A Theory of Consumer Boycotts under Symmetric Information and Imperfect Competition," Economic Journal, Royal Economic Society, vol. 116(511), pages 355-381, April.
    3. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
    4. Parkash Chander & Henry Tulkens, 1995. "A core-theoretic solution for the design of cooperative agreements on transfrontier pollution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 279-293, August.
    5. Murdoch, James C. & Sandler, Todd & Vijverberg, Wim P. M., 2003. "The participation decision versus the level of participation in an environmental treaty: a spatial probit analysis," Journal of Public Economics, Elsevier, vol. 87(2), pages 337-362, February.
    6. Andrei Shleifer, 2004. "Does Competition Destroy Ethical Behavior?," American Economic Review, American Economic Association, vol. 94(2), pages 414-418, May.
    7. Baron, David P., 2002. "Private Politics and Private Policy: A Theory of Boycotts," Research Papers 1766, Stanford University, Graduate School of Business.
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    Cited by:

    1. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.

    More about this item


    Environmental policy; automobile; fuel efficiency standard; gasoline tax; innovation spillovers;

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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