Automobile quality choice under pollution control regulation |
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Authors: | Ida Ferrara |
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Institution: | (1) Economics, Atkinson Faculty of Liberal and Professional Studies, York University, 4700 Keele Street, Toronto, ON, Canada, M3J 1P3 |
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Abstract: | In this paper, we develop a modified quality choice model to study the effects of various mobile-source air pollution control
regulations. We have a single producer that supplies a fixed number of car types (two) but faces a spectrum of consumers differing
in their valuation of car quality. The car manufacturer chooses the quality levels of the two car types as well as the sales
mix between the two types and the size of the market it wishes to supply. By endogenizing both the sales mix and the market
size, while still allowing quality to be a choice variable, we are able to more completely analyze the impact of any car pollution
control regulation. Existing studies of this impact either focus on the model line adjustment response (shifts in the quality
array) or on the price adjustment response (changes in the sales mix and market size). In allowing for both the model line
and the price adjustment options, we find that the corporate average fuel efficiency (CAFE) standard is unambiguously welfare
superior to the low-emission vehicle quantity constraint (LEV) and zero-emission vehicle (ZEV) programs. We also show that
the effects of the CAFE standard are not equivalent to those of a fuel tax, as previously found, and that, for a given car
pollution target, the former is preferred to the latter.
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Keywords: | Automobile industry Quality differentiation CAFE Self-selection Fuel tax ZEV |
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