Car Notches: Strategic Automaker Responses to Fuel Economy Policy

James Sallee and Joel Slemrod

No 16604, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Notches --- where small changes in behavior lead to large changes in a tax or subsidy --- figure prominently in many policies, but have been rarely examined by economists. In this paper, we analyze a class of notches associated with policies aimed at improving vehicle fuel economy. We provide several pieces of evidence showing that automakers respond to notches in fuel economy policy by precisely manipulating fuel economy ratings so as to just qualify for more favorable treatment. We then describe the welfare consequences of this behavior and derive a welfare summary statistic applicable to many contexts.

JEL-codes: H21 H23 H26 (search for similar items in EconPapers)
Date: 2010-12
Note: EEE PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as Sallee, James M. & Slemrod, Joel, 2012. "Car notches: Strategic automaker responses to fuel economy policy," Journal of Public Economics, Elsevier, vol. 96(11), pages 981-999.

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Journal Article: Car notches: Strategic automaker responses to fuel economy policy (2012)
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