Is demand for polluting goods manageable? an econometric study of car ownership and use in Mexico
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.
|Date of creation:||30 Jun 1994|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/Email:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chow, Gregory C & Lin, An-loh, 1971.
"Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series,"
The Review of Economics and Statistics,
MIT Press, vol. 53(4), pages 372-75, November.
- Tom Doan, . "DISAGGREGATE: RATS procedure to implement general disaggregation (interpolation/distribution) procedure," Statistical Software Components RTS00050, Boston College Department of Economics.
- Tom Doan, . "CHOWLIN: RATS procedure to distribute a series to a higher frequency using related series," Statistical Software Components RTS00036, Boston College Department of Economics.
- Tae H. Oum & Waters, W.G. & Jong Say Yong, 1990. "A survey of recent estimates of price elasticities of demand for transport," Policy Research Working Paper Series 359, The World Bank.
- Kahn, James A, 1986. "Gasoline Prices and the Used Automobile Market: A Rational Expectations Asset Price Approach," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 323-39, May.
- Manski, Charles F., 1983. "Analysis of equilibrium automobile holdings in Israel with aggregate discrete choice models," Transportation Research Part B: Methodological, Elsevier, vol. 17(5), pages 373-389, October.
- Hau, Timothy D., 1992. "Economic fundamentals of road pricing : a diagrammatic analysis," Policy Research Working Paper Series 1070, The World Bank.
- 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.
- Baltagi, Badi H. & Griffin, James M., 1983. "Gasoline demand in the OECD : An application of pooling and testing procedures," European Economic Review, Elsevier, vol. 22(2), pages 117-137, July.
- 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.
- Rust, John, 1985. "Stationary Equilibrium in a Market for Durable Assets," Econometrica, Econometric Society, vol. 53(4), pages 783-805, July.
- 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.
- 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.
- Drollas, Leonidas P., 1984. "The demand for gasoline : Further evidence," Energy Economics, Elsevier, vol. 6(1), pages 71-82, January.
- Robert W. Hahn, 1995. "Choosing among fuels and technologies for cleaning up the air," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 14(4), pages 532-554.
- Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, June.
- Auerbach, Alan J. & Hassett, Kevin, 1992.
"Tax policy and business fixed investment in the United States,"
Journal of Public Economics,
Elsevier, vol. 47(2), pages 141-170, March.
- Alan J. Auerbach & Kevin Hassett, 1991. "Tax Policy and Business Fixed Investment in the United States," NBER Working Papers 3619, National Bureau of Economic Research, Inc.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Eskeland, Gunnar S & Jimenez, Emmanuel, 1992. "Policy Instruments for Pollution Control in Developing Countries," World Bank Research Observer, World Bank Group, vol. 7(2), pages 145-69, July.
- Hau, Timothy D., 1992. "Congestion charging mechanisms for roads : an evaluation of current practice," Policy Research Working Paper Series 1071, The World Bank.
- Fuss, Melvyn A., 1977. "The demand for energy in Canadian manufacturing : An example of the estimation of production structures with many inputs," Journal of Econometrics, Elsevier, vol. 5(1), pages 89-116, January.
- Krupnick, Alan J., 1992. "Measuring the effects of urban transportation policies on the environment : a survey of models," Policy Research Working Paper Series 1030, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1309. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.