The effectiveness of gasoline taxation to manage air pollution

Higher gasoline taxes can be justified because cars cause significant local, regional, and global air pollution damages. This study examines whether charging higher taxes would result in significant emission reductions. Both experimental survey data and actual behavior in Southern California and Connecticut are evaluated to explore whether people would change their driving behavior in response to higher gasoline prices. Both sets of results reveal that drivers are price inelastic in the short run (−0.4 to −0.6) and long run (−0.5 to −0.7). Imposing environmental surcharges on gasoline will result in only a small reduction in driving and thus only a small improvement in the environment. Such taxes will place a heavy and clear burden on drivers, however, making gasoline taxes extremely unpopular. Finally, the study finds that the income elasticity of gasoline is low (0.1–0.2) so that the gas tax will fall heavily on the poor.     

THE ECONOMICS OF ALTERNATIVE FUEL USE: SUBSTITUTING METHANOL FOR GASOLINE

Alternative fuel advocates recommend substituting methanol for gasoline since methanol cars potentially pollute less. However, because the substitution is costly and the reduction of ozone precursor emissions is relatively small, using methanol raises questions about cost effectiveness.
This study demonstrates that the air quality benefits would be very expensive: The cost effectiveness usually would exceed tens or hundreds of thousands of dollars per ton of reduced volatile organic compound emissions. Only if all the cost and emissions assumptions lined up favorably would methanol substitution be desirable. Even then, it would be attractive only if the energy-adjusted price difference between gasoline and methanol were just a few cents a gallon.     

On the Effects of Suggested Prices in Gasoline Markets

There is a widespread suspicion that suggested prices act as a focal point for individual firms when setting their prices. Oil companies announce suggested prices for gasoline stations in the Dutch retail market. We show that, compared to the gasoline spot market price, suggested prices contain additional information that explains retail price changes. We conclude that suggested prices have a horizontal coordinating effect in the sense that retail prices react to information that suggested prices contain and that is unrelated to firms’ costs (i.e., the information that firms use under normal competitive conditions).     

The Consumer’s Micro-Micro Gasoline Buying Decision

A “micro-micro” consumer problem of gasoline purchases is examined using daily price data. Comparing the optimizing consumer with one who buys gasoline at random, the paper finds optimizers save about 4% of their annual gasoline bill. The paper also provides some evidence about the costs of non-optimal gasoline buying strategies.      

Optimal taxation of car ownership, car use and public transport: Insights derived from a discrete choice numerical optimization model

We formulated and numerically evaluated a model of car ownership, car use and public transport use for peak and off-peak hours of the day. The model was used to study the optimal tax structure for passenger transport in Belgium, with special emphasis on the optimal tax treatment of diesel versus gasoline cars. We obtained a number of interesting results. First, if the government can set all fixed and variable transport taxes optimally, the higher marginal external cost of diesel use implies that the optimal tax per kilometre for the use of a diesel car is higher than for the use of a gasoline car. Moreover, high congestion implies that the taxes on car use in the peak period are more than twice their current levels. However, the optimal tax on ownership of a diesel car is some 200€ below its current level. Second, if the government uses kilometre taxes that do not differentiate between fuel types, the optimal ownership tax on a diesel car is twice as high as the tax on a gasoline car. Furthermore, if political constraints restrict user taxes to their current levels, we find that optimal ownership taxes on diesel cars double, whereas those on gasoline cars rise by 30%. Finally, subsidies to public transport are found to be optimal as long as variable car taxes are not differentiated between periods.     

Estimating the elasticities of gasoline demand: an instrumental variable approach

This article uses a new identification strategy to estimate the demand for gasoline. I show that the monthly gasoline price is endogenous to gasoline demand at the state level, and that gasoline tax and domestic oil first purchasing price together are strong and valid instruments to correct for the endogeneity bias. In addition to estimating the price elasticity, this article also provides an estimate of the income elasticity. These updated estimates are critical factors in evaluating the environmental effect of gasoline tax and forecasting gasoline consumption.     

Evaluating the economy embedded in the Brazilian ethanol–gasoline flex-fuel car: a Real Options approach

The introduction of the flex-fuel cars in the Brazilian market in 2003 changed considerably the consumer decision-making process. Prior to this date, it was necessary to choose the automobile type only by gasoline or by ethanol fuel; today it is possible to choose a car type with both fuel options. This flexibility generates economic advantages for his owner, but what are the financial benefits of a flex-fuel car in comparison with a car using only gasoline? Geographically, where is the owner of the benefits from this flexibility located? This article presents an empirical application of the Real Options Theory in the analysis of the flex-fuel car option for five geographic Brazilian regions: Northern, Northeastern, Central-Western, Southeastern and Southern. The regional price differences as well as the consumer preferences of these regions were met. For this purpose, historical fuel prices were considered stochastic and following a Mean Reverting Stochastic process. The prediction and option values were generated by a Monte Carlo simulation. The results indicated that the option embedded on the Brazilian flex-fuel car adds considerable value to the owner in all regions and car models considered, with the Southeastern Region receiving most benefits by the flex option.     

Competition and price asymmetries in the Greek oil sector: an empirical analysis on gasoline market

This article attempts to investigate the issue of asymmetries in the transmission of shocks to input prices and exchange rate onto the wholesale and retail price of gasoline respectively. For this purpose, we utilise the error-correction methodology in the Greek gasoline market. The sample consists of monthly data covering the period of January 1988 to June 2006. We also try to analyse by using impulse response functions the effect of competition on the dynamic adjustment of gasoline price to which has been paid scant attention in the past. The results favour the common perception that retail gasoline prices respond asymmetrically to cost increases and decreases both in the long and the short-run. At the wholesale segment, there is a symmetric response of the spot prices of gasoline towards the adjustment to the short-run responses of the exchange rate. Lastly, after the deregulation, wholesale prices of gasoline tend to gradually restore equilibrium triggered by a price shock compared to the regulated period.     

Vertical Control and Price Cycles in Gasoline Retailing

We examine Norwegian gasoline pump prices using daily station‐specific observations from 2003 to 2006. The four big gasoline companies use a vertical restraint that is adopted industry‐wide (labeled price support). This moves price control from the hands of independent retailers into the hands of the headquarters. Retail gasoline prices follow a fixed weekly pattern, where we observe de facto simultaneous decision‐making by the headquarters (without knowledge of their rivals’ prices) when every Monday around noon they decide to increase pump prices to the same level. The price level on Mondays corresponds to the recommended prices published by the headquarters of the gasoline companies.     

Geographical dispersion of consumer search behaviour

This article investigates whether consumer search behaviour differs across zip codes within the U.S. As an application, daily gasoline price data covering virtually all gas stations within the U.S. are employed to estimate the distribution of search costs in each zip code. The results show that there are significant differences across zip codes regarding the expected number of searches achieved before consumers purchase gasoline. In order to have a systematic explanation, such differences are further connected to geographic, demographic, and economic conditions of the zip codes in a secondary analysis. The corresponding results imply several strategies for gas stations in order to maximize profits/markups; suggestions follow for policy makers and regulators to reduce redistributive effects of information barriers across locations.     

The impact of the corporate average fuel economy standards on technological changes in automobile fuel efficiency

This paper empirically examines the effect of the U.S. Corporate Average Fuel Economy (CAFE) standards on the technological progress in automobile fuel efficiency. Using detailed vehicle attributes data from 1978 through 2018, we find that more stringent fuel economy standards increase the rate of technological improvements in new passenger cars, and this effect is primarily driven by the response of U.S. automakers. We do not find evidence that CAFE standards have a similar effect on the technical change in light-duty trucks. Our results also indicate that higher gasoline prices have a significant and positive effect on the improvement of fuel-saving technology in both passenger cars and light trucks. Using our empirical estimates, we project that the recent rollback of Obama-era CAFE standards would forego an approximately 2-percent increase in cars’ fuel economy over the 2021–2025 period as a result of technological progress.     

INFORMATION AND PRICE DISPERSION: THEORY AND EVIDENCE

Limited information is the key element generating price dispersion in models of homogeneous-goods markets. We show that the global relationship between information and price dispersion is an inverse-U shape. We test this mechanism for the retail gasoline market using a new measure of information based on commuter data from Austria. Commuters sample gasoline prices on their commuting route, providing us with spatial variation in the share of informed consumers. Our empirical estimates are in line with the theoretical predictions. We also quantify how information affects average prices paid and the distribution of surplus in the gasoline market.     

AN EXAMINATION OF THE EFFECTS OF ENVIRONMENTAL REGULATIONS ON RETAIL GASOLINE PRICE SEASONALITY

Stricter environmental standards on gasoline have had impacts on the prices of gasoline including the seasonality of gasoline prices. Using both national data and individual station data, the paper tests for a possible explanation for this increase. Three theories are tested: that gasoline seasonality increases due to higher costs, due to greater market power because of segmented markets, or due to greater asymmetry because of greater inattention on the part of customers. The results suggest that gasoline price seasonality has increased both due to higher costs and greater market power with mixed results on the inattention of consumers.(JEL Q41, Q53, Q58).     

Energy Tax and Competition in Energy Efficiency: The Case of Consumer Durables

The purpose of this paper is to analyze the role of anenergy tax on technical improvements and on prices ofconsumer durables induced by strategic competition inenergy efficiency. If the gasoline tax is raised thisdoes in principle not affect the producers of carsbecause the motorist pays for it in terms of a highercost of using the car. This, however, affects the unitsales of car producers because of substitution towardsother modes of transportation. A second element ofreaction to energy price variation is an indirect oneand relates to the effect of energy prices ontechnology. Competition forces car producers todevelop more energy efficient cars in order to reducethe cost of using a car. This indirect effect canpartly offset the direct effect of higher energyprices on demand if it is profitable for theautomobile industry to engineer more energy efficientequipment. We will analyze the impact of an energy taxon energy efficiency and on the price of a durablegood. This will be done within the framework of aduopoly competing in prices and in the energyefficiency of its products. The government chooses awelfare maximizing energy tax as an incentive toinnovate. Then we will analyze a strategic two-stagedecision process in which the duopolists first decideabout energy efficiency and then compete in prices.     

Hedonic prices indexes for new passenger cars in Portugal (1997–2001)

This paper evaluates the effects of quality change on the price index for new passenger cars in Portugal for the years 1997–2001. Hedonic regression models are studied, giving particular emphasis to the relation between the form of the price index and the econometric techniques used for inference. The results of the empirical part of the paper indicate that during this period the changes in the quality of new cars sold in Portugal are responsible for price increases averaging 4.8% per year. Because this quality change was not entirely taken into account, in recent years the CPI component corresponding to the sales of new passenger cars may have been overestimated by as much as 2.2 percentage points per year. This corresponds to an overestimation of the overall CPI by about 0.15 percentage points per year.     

Spatial distribution of species populations,relative economic values,and the optimal size and number of reserves

We examine the tradeoff between the number and average size of nature reserves. When the costs of enforcing reserve boundaries are negligible, we find analytically that the relative price of biodiversity has a positive impact on the optimal total reserved area but an ambiguous impact on the optimal number of reserves. Simulation modeling of floral diversity in a tropical timber concession reveals that the resolution of this ambiguity depends on spatial distributions of the populations of tree species: whether or not they are spatially aggregated (clumped). The impact of biodiversity price on optimal reserve number remains analytically ambiguous when enforcement costs are not negligible. Multiple reserves being economically superior to a single reserve now requires, in addition to aggregation, a biodiversity price that is sufficiently high to offset the effects of enforcement costs. Most of our simulation scenarios generate threshold biodiversity prices that do not exceed a leading estimate of the marginal value of a higher plant species in the bioprospecting literature. Several smaller reserves evidently can be economically superior to a single larger one even in the presence of enforcement costs.      

Arbitrage costs and nonlinear adjustment in the G7 stock markets

This article aims to study stock price adjustments towards fundamentals due to the existence of arbitrage costs defined as the sum of transaction costs and a risky arbitrage premium associated with the uncertainty characterizing the fundamentals. Accordingly, it is shown that a two regime Smooth Transition Error Correction Model (STECM) is appropriate to reproduce the dynamics of stock price deviations from fundamentals in the G7 countries during the period 1969 to 2005. This model takes into account the interdependences or contagion effects between stock markets. Deviations appear to follow a quasi random walk in the central regime when prices are near fundamentals (i.e. when arbitrage costs are greater than expected arbitrage profits, the mean reversion mechanism is inactive), while they approach a white noise in the outer regimes (i.e. when arbitrage costs are lower than expected arbitrage profits, the mean reversion is active). Interestingly, as expected when arbitrage costs are heterogeneous, the estimated STECM shows that stock price adjustments are smooth and that the convergence speed depends on the size of the deviation. Finally, using two appropriate indicators proposed by Peel and Taylor (2000), both the magnitudes of under and overvaluation of stock price and the adjustment speed are calculated per date in the G7 countries. These indicators show that the dynamics of stock price adjustment are strongly dependent on both the date and the country under consideration.     

Downtown parking meter demand in a border metropolitan economy

Prior research establishes that the price of parking in the city centre often impacts the decision to travel downtown and the mode of transportation utilized. Other factors that influence the decision to drive and park downtown have received less attention. This study uses time series data to analyse the demand for metered parking spaces in El Paso, Texas, USA. In addition to meter rates, the determinants of demand include personal income, gasoline prices and the price of a substitute good, parking garage spaces. Because international bridges connect downtown El Paso to neighbouring Ciudad Juárez, Chihuahua, Mexico, the impacts of trans-boundary traffic flows, bridge tolls and other cross-border economic variables are also included as potential determinants of metered parking demand. Results indicate that parking meter rates, other transportation-related costs, and economic conditions in both countries affect meter use.     

The impact of the market transparency unit for fuels on gasoline prices in Germany

Increasing horizontal as well as vertical transparency in oligopolistic markets can be advantageous for consumers, due to reduced search costs. However, market transparency can also affect incentives to deviate from collusive agreements and the punishment by rival firms in the market. Using a panel of 27 European countries, we analyse the impact of increased market transparency via the introduction of a market transparency unit for fuels in Germany. Applying a difference-in-differences approach, we find evidence that both gasoline and diesel prices have increased. While consumers may be better off using a retail price app for fuels, gas stations are also able to compare prices at almost no cost.