The impact of carbon emission fees on passenger demand and air fares: A game theoretic approach |
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| Affiliation: | 1. Faculty of Management and Economics, Dalian University of Technology, No. 2 Linggong Road, Dalian City, 116024, China;2. Transportation Management College, Dalian Maritime University, No. 1 Linghai Road, Dalian City, 116026, China;1. School of Economics and Management, Southeast University, Nanjing 211189, China;2. Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, China;3. School of Management and Economics, Beijing Institute of Technology, Beijing 100081, China;4. Collaborative Innovation Center of Electric Vehicles in Beijing, Beijing 100081, China;5. School of Business Administration, Nanjing University of Finance and Economics, Nanjing 210023, China;1. Department of Hotel and Tourism Management, College of Hospitality and Tourism, Sejong University, 209 Neungdong-ro, Gwangjin-gu, Seoul 05006, South Korea;2. Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology, 291 Daehak-ro, Yuseong-gu, Daejeon 34141, South Korea;1. TSE(ENAC), 7av. ed Belin, 31055 Toulouse cedex 4, France;2. Université de Savoie (IREGE) , 4 chemin de Bellevue, 74000 Annecy-le-vieux, France |
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| Abstract: | The implementation of an environmental market-based measure on U.S. aviation industry is studied. Under this policy, each airline pays a carbon fee for the carbon dioxide emissions it generates. The impact on ticket prices and corresponding market shares is investigated via the joint estimation of an air travel demand model and an airlines' behavior model. In the demand model, aggregate air traffic data is used to determine the marginal effects of flight attributes that are specific to itinerary, airline and airport on market share. The airline's behavior model incorporates the carbon fee in the airline marginal cost. After the implementation of the carbon policy, the increased cost forces airlines to adjust ticket prices in order to maximize profits. The results obtained by the proposed model indicate a moderate price increase which strongly depends on the per tonne carbon price. Air travel demand falls from 2.4% to 21% depending on the carbon price level. |
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| Keywords: | Carbon emission fees Air travel demand Discrete choice Generalized method of moments Endogeneity Game theory |
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