Emissions Control and the Regulation of Product Markets: The Case of Automobiles

The paper investigates alternative policies to regulate emissions from polluting product markets, specifically considering the case of the automobiles market. The two policies we consider are: a quota that limits the quantity produced of the polluting model and a more flexible average efficiency standard that requires a minimum energy efficiency across all models produced by a firm, similar to the US Corporate Average Fuel Economy (CAFE) standards. We use a duopoly model of vertical differentiation where firms produce both an economy (i.e., low polluting) version and a luxury (i.e., high polluting) version of a given product. We show that while a quota can raise firm profit over a certain range, CAFE always reduces firm profit relative to the pre-regulation. We also show that while the quota reduces emissions, it is possible that emissions increase under CAFE. The optimal policy choice will depend on the magnitude of unit damages. We show that when unit damages are sufficiently high, the quota policy is more efficient than the average efficiency standard. This suggests that instead of tightening CAFE to limit damages from emissions, policy makers can shift to a quota policy which is both welfare enhancing and more profitable for firms.

Environmental change and hedonic cost functions for automobiles

This paper focuses on how changes in the economic and regulatory environment have affected production costs and product characteristics in the automobile industry. We estimate “hedonic cost functions” that relate product-level costs to their characteristics. Then we examine how this cost surface has changed over time and how these changes relate to changes in gas prices and in emission standard regulations. We also briefly consider the related questions of how changes in automobile characteristics, and in the rate of patenting, are related to regulations and gas prices.

A computer program (VEHSIM) for vehicle fuel economy and performance simulation (automobiles and light trucks). Volume I: description and analysis. Final report.

National Highway Traffic Safety Administration, Office of Research and Development, Washington, D.C.

A computer program (VEHSIM) for vehicle fuel economy and performance simulation (automobiles and light trucks). Volume II: users guide. Final report.

National Highway Traffic Safety Administration, Office of Research and Development, Washington, D.C.

A computer program (VEHSIM) for vehicle fuel economy and performance simulation (automobiles and light trucks). Volume IV: enhancements. Final report.

National Highway Traffic Safety Administration, Office of Research and Development, Washington D.C.

Requests by General Motors and Ford to reduce fuel economy standards for MY 1981-85 passenger automobiles. Report.

Mode of access: Internet.

Human factors aspects of using head up displays in automobiles: a review of the literature.

National Highway Traffic Safety Administration, Washington, D.C.

Accident investigation studies on 1979 model automobiles in conjunction with FMVSS 301 compliance testing. Final report.

National Highway Traffic Safety Administration, Office of Vehicle Safety Compliance, Washington, D.C.

Accident investigation studies on 1980 model automobiles in conjunction with FMVSS 301 compliance testing. Final report.

National Highway Traffic Safety Administration, Office of Vehicle Safety Compliance, Washington, D.C.

Weight reduction potential of automobiles and light truck. 1980 summary source document. Final report.

National Highway Traffic Safety Administration, Office of Research and Development, Washington, D.C.

Side impact crashworthiness of full-size hardtop automobiles. Final report. Phase II.

National Highway Traffic Safety Administration, Washington, D.C.

An analysis of the automobile market: modeling of the long-run determinants of the demand for automobiles. Volume III: appendices to the Wharton E.F.A. Automobile Demand Model. Final report.

Transportation Department, Washington, D.C.

Crash tests of single post sign installations using subcompact automobiles. Interim report.

Federal Highway Administration, Implementation Division, Washington, D.C.