Consumer Learning and Hybrid Vehicle Adoption

We study the diffusion of hybrid vehicles among consumers. Using data on sales of 11 different models over seven years, we identify the effect of the penetration rate--total cumulative hybrid sales per capita--on new hybrid purchases. The penetration rate significantly affects new purchases, and the effect differs by hybrid model. In particular, we find a positive diffusion effect from the Toyota Prius and a negative diffusion effect from the Honda Insight, with elasticities of 0.23 to 0.85 for the Prius and -0.08 to -0.32 for the Insight. This finding is consistent with our model of model-specific learning along with anecdotal evidence that early Insight models were perceived to be of lower quality than Prius models. Higher Insight penetration rates gave a negative signal about hybrid quality and inhibited rather than promoted hybrid adoption. The findings are relevant for policy designed to promote new technologies.

The General Equilibrium Incidence of Environmental Mandates

Regulations that restrict pollution by firms also affect decisions about use of labor and capital. They thus affect relative factor prices, total production, and output prices. For non-revenue-raising environmental mandates, what are the general equilibrium impacts on the wage, the return to capital, and relative output prices? Perhaps surprisingly, we cannot find any existing analytical literature addressing that question. This paper starts with the standard two-sector tax incidence model and modifies one sector to include pollution as a factor of production that can be a complement or substitute for labor or for capital. We then look not at taxes but at four types of mandates, and for each mandate determine conditions that place more of the burden on labor or on capital. Stricter regulation does not always place less burden on the factor that is a better substitute for pollution. Also, a relative restriction on the amount of pollution per unit of output creates an "output-subsidy effect" on factor prices that can offset and reverse the traditional output effect and substitution effect. An analogous effect is found for a relative restriction on pollution per unit of capital.

The General Equilibrium Incidence of Environmental Taxes

We study the distributional effects of a pollution tax in general equilibrium, with general forms of substitution where pollution might be a relative complement or substitute for labor or for capital in production. We find closed form solutions for pollution, output prices, and factor prices. Various special cases help clarify the impact of differential factor intensities, substitution effects, and output effects. Intuitively, the pollution tax might place disproportionate burdens on capital if the polluting sector is capital intensive, or if labor is a better substitute for pollution than is capital; however, conditions are found where these intuitive results do not hold. We show exact conditions for the wage to rise relative to the capital return. Plausible values are then assigned to all the parameters, and we find that variations over the possible range of factor intensities have less impact than variations over the possible range of elasticities.

Optimal Policy Instruments for Externality-Producing Durable Goods Under Time Inconsistency

When consumers exhibit present bias and are time-inconsistent, the standard solution to market failures caused by externalities—Pigouvian pricing—is suboptimal. I investigate policies aimed at externalities for time-inconsistent consumers. Welfare-maximizing policy in this case includes an instrument to correct the externality and an instrument to correct the present bias. Either instrument can be an incentive-based policy or a command-and-control policy. Calibrated to the US automobile market, simulation results from a model with time-inconsistent consumers suggest that the second-best gasoline tax is 18%–30% higher than marginal external damages. These simulations also suggest that social welfare is maximized with a gasoline tax set about equal to marginal external damages and a fuel economy tax that increases the price of an average non-hybrid car by about $750–$2200 relative to the price of an average hybrid car

Plant vintages, grandfathering, and environmental policy

Environmental regulations that grandfather existing plants by not holding them to the same strict standards as new plants may have the unintended consequence of retarding new investment. If new plants are cleaner, then this effect may increase pollution in the short run. I develop a dynamic model of a facility\u27s decisions over scrapping and abatement, which depend on capital depreciation, profitability shocks, and environmental policy. Using data from fossil fuel fired boilers at electric power plants, I estimate the structural parameters of the model and assess the impact of grandfathering in the Clean Air Act on sulfur dioxide emissions. Counterfactual policy simulations show that an increase in the stringency of performance standards would have led to a decrease in investment in new boilers. However, this does not lead to increased emissions, since there is less investment in dirtier coal boilers as compared to relatively cleaner oil or natural gas boilers

How should environmental policy respond to business cycles? Optimal policy under persistent productivity shocks

How should environmental policy respond to economic fluctuations caused by persistent productivity shocks? This paper answers that question using a dynamic stochastic general equilibrium real business cycle model that includes a pollution externality. I first estimate the relationship between the cyclical components of carbon dioxide emissions and US GDP and find it to be inelastic. Using this result to calibrate the model, I find that optimal policy allows carbon emissions to be procyclical: increasing during expansions and decreasing during recessions. However, optimal policy dampens the procyclicality of emissions compared to the unregulated case. A price effect from costlier abatement during booms outweighs an income effect of greater demand for clean air. I also model a decentralized economy, where government chooses an emissions tax or quantity restriction and firms and consumers respond. The optimal emissions tax rate and the optimal emissions quota are both procyclical: during recessions, the tax rate and the emissions quota both decrease

Crowding Out and Crowding In of Private Donations and Government Grants

A large literature examines the interaction of private and public funding of public goods and charities, much of it testing if public funding crowds out private funding. This paper makes two contributions to this literature. First, the crowding out effect could also occur in the opposite direction: in response to the level of private contributions, the government may alter its funding. I model how crowding out can manifest in both directions. Second, with asymmetric information about the quality of a public good, one source of funding may act as a signal about that quality and crowd in the other source of funding. I test for crowding out or crowding in either direction using a large panel data set gathered from nonprofit organizations' tax returns. I find strong evidence that government grants crowd in private donations, consistent with the signaling model. Regression point estimates indicate that private donations crowd out government grants, but they are not statistically significant.

The Investment Returns of Nonprofit Organizations, Part II

We continue our examination of the investment performance of nonprofit charities and foundations. This analysis tests hypotheses about what types of organizations do better. Our motivating intuition is that nonprofits with greater focus on investment performance will secure higher returns. Our hypotheses are tested by regressing the rate of return for each organization on various characteristics. As expected, nonprofits whose primary business is predominantly financial, such as insurance providers and pension or retirement funds, consistently earn higher returns. The data also support our hypotheses that larger nonprofits, older nonprofits, and private foundations will tend to outperform. The evidence is mixed as to whether nonpr