On the incentives to provide fuel-efficient automobiles |
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| Authors: | Hans Degryse Andreas Irmen |
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| Affiliation: | (1) Present address: K. U. Leuven and Tilburg University, Naamsestraat 69, B-3000 Leuven, Belgium;(2) Present address: Department of Economics A5, University of Mannheim, D-68131 Mannheim, Germany |
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| Abstract: | We argue that the provision of more fuel-efficient cars necessitates specific aerodynamic shapes. We show that the presence of this technological constraint may reduce the incentives to provide fuel efficiency. In equilibrium, cars become more similar and aerodynamic as fuel prices increase. However, the provided level of fuel efficiency falls short of the social optimal one such that a fuel-economy standard is welfare-enhancing. |
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| Keywords: | fuel-efficient automobiles attributes product differentiation |
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