Intro. Data Treatments Logit Substitution Summary Qualitative Effects of Cash-For-Clunkers Programs Eugenio J. Miravete 1 ıa J. Moral 2 Mar´ 1 University of Texas at Austin & Centre for Economic Policy Research 2 UNED March 28, 2012 Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Disclaimer “My apologies but this paper is not about the 2009 U.S. Cash-for-Clunkers Program, although perhaps we can all learn something about its potential effects.” Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Scrappage Programs Cash-for-Clunkers is a common (Keynesian) policy in time of recession. In addition to direct and indirect jobs, it helps reduce the average age of the car fleet and improve road safety. In the absence of a carbon tax or higher fuel taxes, these programs help achieving environmental goals as long as newer cars are more fuel efficient than the replaced ones. Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Adoption of TDI technology The paper introduces the massive adoption of the new TDI technology to (hopefully) a wider audience. Demand for automobiles change dramatically in Europe during the 1990s. Evaluating the effects of the adoption of TDIs is complicated because the automobile industry is not perfectly competitive, vehicles are horizontally differentiated, and diffusion takes an extended period of time. For the current version the key question is: Do clunkers programs induce any permanent qualitative effect beyond a temporary sale spike? Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Quantity vs. Quality Sales: Effect of scrappage rates and impact on optimal replacement age. Greenspan and Cohen (1999); Adda and Cooper (2000). Emissions: Combined with compulsory maintenance and competition effects. Hahn (1995); Goldberg (1998). Price Discrimination: Pricing of vehicles with different fuel efficiency responds to mileage driven. Verboven (2002). Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Heterogeneous Demand for Diesel Vehicles in Europe 1.000 0.900 0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 EU15 Diesel-(%) Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Heterogeneous Demand for Diesel Vehicles in Europe 1.000 0.900 0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 SPAIN Spain: % Diesel EU15: % Diesel Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Heterogeneous Demand for Diesel Vehicles in Europe 1300000 1200000 1100000 1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 FRANCE: Automobile Sales & Scrapping Program Gasoline Diesel Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Heterogeneous Demand for Diesel Vehicles in Europe 250000 200000 150000 100000 50000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 AUSTRIA: Automobile Sales & Scrapping Program Gasoline Diesel Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Heterogeneous Demand for Diesel Vehicles in Europe 3750000 3500000 3250000 3000000 2750000 2500000 2250000 2000000 1750000 1500000 1250000 1000000 750000 500000 250000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 GERMANY: Automobile Sales & Scrapping Program Gasoline Diesel Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Heterogeneous Demand for Diesel Vehicles in Europe 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 SPAIN: Automobile Sales & Scrapping Program Gasoline Diesel Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview What do we want to achieve? Determine the main drivers of demand for vehicles and how they change over time. Evaluate whether scrappage programs accelerated the adoption of a new and relatively unknown technology. Identify why this policy intervention was successful in shifting demand by comparing it with other experiences. Describe a process of preference change towards more fuel efficient vehicles that transformed the shape of the Spanish automobile industry within a decade. Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview Main Results The effectiveness of Cash-for-Clunkers in changing the nature of demand for automobiles is not immediate but rather it has to be evaluated in the long run. Better mileage is not the only reason why drivers favor diesel over gasoline automobiles. Preferences evolve so that diesel and gasoline models become closer substitutes but their demand respond very differently to each other prices. Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary Motivation Literature Agenda Preview What about CARS? The bottom line: “It will not succeed alone in shifting the demand towards more fuel efficient automobiles because the policy intervention happens too early in the diffusion path of fuel efficient hybrids.” Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary TDI Scrappage Programs Data What is TDI? Turbo Direct Injection Diesel Engine (Audi-WV, 1989): The most efficient internal combustion engine available. It combines a direct injection pump, a turbo charger, and an intercooler to increase the power while reducing fuel consumption and therefore emissions per gallon. Increased performance and higher torque than gasoline engines. High durability and reliability, zero smell, and quite low clattering. Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary TDI Scrappage Programs Data The Spanish Economy in the 1990s Strong recession in years 1992 – 1995. Unemployment reached 24% in 1994. Very strong growth in the second half of 1990s. Immigration (first wave since 1492) exceeded 10% of population of nationals in just five years. Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary TDI Scrappage Programs Data The Spanish Automobile Industry in the 1990s Fifth largest in the world by output. Largest exporting industry in the country. Second largest contributor to GDP. Important links to other sectors such as automobile components. The component industry is so diversified that it attracted Japanese manufacturers to open manufacturing plants in Spain after the automobile market was liberalized. Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary TDI Scrappage Programs Data Program Descriptions Policy intervention was unanticipated (following France’s example) and did not target diesel vehicles specifically. First “Plan Renove” : April’94 to June ’94. Between 500 to 600 euros (a 4.89% price discount for gasoline and a 4.40% price discount for diesel models, respectively). Need to buy a new car and replace one seven years or older. Second “Plan Renove” : October’94 to March ’95. About 480 euros. Need to buy a new car and replace one ten years or older. Miravete & Moral Cash-For-Clunkers
Intro. Data Treatments Logit Substitution Summary TDI Scrappage Programs Data Data Description Spanish automobile registrations, 1991-2000: We observe registrations by type of engine. Unbalanced panel with 1,869 model-year observations. 340 models (206 gasoline and 134 diesel). Relative to gasoline models diesel vehicles are... 10% heavier. 15% to 20% less powerful. Between 1,000 and 2,000 euros more expensive. Consume 20% less fuel per mile leading to an average 35% savings in the cost of driving. Miravete & Moral Cash-For-Clunkers
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