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Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies

  • Jerome Adda
  • Russell Cooper

This paper studies the effects of subsidies on durable goods markets. In particular, we study a recent policy in France in which the governments of Balladur and Jupp‚ subsidized the replacement of old cars with new ones. To study this policy, we construct a dynamic stochastic discrete choice model of car ownership at the household level. The resulting decision rules and equilibrium conditions are used to estimate, using aggregate data, the underlying parameters of the model. These policy functions are used to evaluate the short and long run effects of the French policies. We find that these policies do stimulate the automobile sector in the short run but, through the induced changes in the cross sectional distribution of car ages, create the basis for subsequent low activity. Further, while these policies increase government revenues in the short run, revenues in the long run are lower relative to a baseline without intervention.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6048.

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Date of creation: May 1997
Date of revision:
Publication status: published as Adda, Jerome and Russell Cooper. "Balladurette And Juppette: A Discrete Analysis Of Scrapping Subsidies," Journal of Political Economy, 2000, v108(4,Aug), 778-806.
Handle: RePEc:nbr:nberwo:6048
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  1. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1994. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," NBER Working Papers 4887, National Bureau of Economic Research, Inc.
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  7. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  8. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-96, March.
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  11. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  12. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
  13. repec:fda:fdaddt:9715 is not listed on IDEAS
  14. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
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