• “Fuel economy or quality? The impact of consumer preferences on the effectiveness of fuel economy regulation" Working Paper 2010, with Kathleen Segerson.
Abstract: The paper investigates the welfare and distributional implications of a higher CAFEstandard. One question that arises is whether consumers are better off as a result of forcing the market to provide high fuel economy. We identify two automobile attributes that consumers value: fuel economy and other quality attributes (e.g., power, acceleration or safety). We assume two possible car models: a luxury fuel consuming model and a lower quality fuel efficient model. We investigate two different cases (1) all consumers prefer economy cars to luxury cars and (2) only a fraction of consumers prefer economy cars over luxury cars. We show that under case (1) while all consumers prefer economy cars, they are worse off under CAFE. This is because firms respond to CAFE by raising prices of both car models. At the same time CAFE successfully reduces emissions, despite of the rebound effect, and a mild CAFE raises profit. On the other hand, under case (2) a mild CAFE reduces the price of economy cars. A mild CAFE also increase consumer surplus and raises profit if a majority of consumers prefer the luxury car over the economy car. However, under case (2), CAFE may increase energy consumption, due to increased car sales as well as the rebound effect. The effect of CAFE on welfare will depend on the magnitude of damages from emissions as well as consumer preferences over car models. We show that a higher energy price can induce a change in consumer preferences from scenario (1) to scenario (2) which ensures that CAFE is more effective in reducing emissions.
• “Controlling Emissions from Automobiles Using Tradable Permits: An Empirical Analysis,” Working Paper 2007, with Shanjun Li.
Abstract: In this paper we investigate the impact of applying a system of automobile tradable permits in reducing emissions from automobiles as an alternative policy to the Corporate Average Fuel Economy (CAFE) standard. We estimate a market equilibrium model composed of a demand side and a supply side based on both market level data and a household survey. Vehicle demand is derived from a discrete choice model in the tradition of BLP. When damages from emissions are high enough, the tradable permit system is more efficient than CAFE. We quantify the welfare gains from shifting to the permit system.
• “How Far did the European Voluntary Agreements on Polluting Products Go? A Case Study,” Working paper 2007.
Abstract:The paper analyzes the success of several European agreements to reduce pollution from polluting products. We identify five different appliances agreements: for washing machines, refrigerators, freezers, dishwashers and water heaters plus another agreement for cars. All agreements committed the major manufacturers (comprising more than 90% of the market) to reduce average energy consumption across the models. In addition the appliances agreements committed the firms to eliminate the least efficient versions of each product. I identify the different factors that contributed to the success of the appliances agreement and the failure of the car agreement, in an attempt to promote the formation of successful VAs in the US.