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Vehicle Scrappage and Gasoline Policy

Mark R. Jacobsen and Arthur A. van Benthem

No 19055, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate the sensitivity of scrap decisions to changes in used car values - the "scrap elasticity" - and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities will tend to produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the elasticities we estimate suggest that 13-23% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect.

JEL-codes: H23 Q52 Q58 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-ene, nep-reg and nep-tre
Note: EEE
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Published as Jacobsen, Mark R., and Arthur A. van Benthem. 2015. "Vehicle Scrappage and Gasoline Policy." American Economic Review, 105(3): 1312-38.

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