Pass-Through and Welfare Effects of Regulations that Affect Product Attributes

Benjamin Leard, Joshua Linn and Katalin Springel
Additional contact information
Benjamin Leard: Resources for the Future
Joshua Linn: Resources for the Future
Authors registered in the RePEc Author Service: Dallas Burtraw and Karen Palmer

No 19-07, RFF Working Paper Series from Resources for the Future

Abstract: A key finding in the literature is that the greater the pass-through of an input cost shock or tax to product prices, the larger the welfare loss to consumers. We show that the relationship between pass-through and welfare changes does not hold for a regulation that affects production costs and product attributes. An analytical model shows that the larger the willingness to pay (WTP) for the product attribute, the greater the pass-through but the smaller the welfare loss (or the larger the welfare gain) for consumers. We confi rm this intuition in the context of passenger vehicle fuel economy standards using new estimates of consumer demand and an equilibrium model. Pass-through and welfare changes are positively correlated with WTP for fuel economy across demographic groups and manufacturers. Accounting for WTP breaks the direct link between pass-through and welfare changes identifi ed in prior literature, and in the short run tightening standards is regressive.

Date: 2019-04-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.rff.org/documents/2020/WP_19-07_Leard_rev.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rff:dpaper:dp-19-07

Access Statistics for this paper

More papers in RFF Working Paper Series from Resources for the Future Contact information at EDIRC.
Bibliographic data for series maintained by Resources for the Future ().