Federal and state governments in many countries subsidize the early adopters of electric vehicles(EVs).
Federal and state governments in many countries subsidize the early adopters of electric vehicles(EVs). These programs often use quotas or deadlines to phase out the subsidies, which can createdynamic incentives for car manufacturers. Since most of the literature studies the effect of introducing subsidies on market outcomes in static settings, little research has addressed the dynamiceffects of subsidy-capping designs. This paper explores those effects in the US vehicle market. Idevelop a structural model of consumers’ vehicle choices and manufacturers’ pricing decisions inthe US automobile industry. I then estimate the model using comprehensive data on new vehicleregistrations, prices, characteristics, and subsidies in 30 states between 2011 and 2017. Based onthe primitives generated from the model, I conduct counterfactual simulations to compare threedesigns: a marketwide deadline, a per-manufacturer deadline, and a per-manufacturer quota. Thesimulations show that for a given government expenditure, the quota leads to up to 18 percent lowerEV sales than the deadlines. Moreover, each design influences the sales of conventional vehicles,consumer surplus, manufacturer profits, and liquid fuel consumption differently.
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