Gas, Energy, etc - Gas, Energy, etc Peter Berck 2003 Cost...

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Gas, Energy, etc Peter Berck 2003
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Cost of Cars Private cost is mostly capital cost Starts at 51c/mile for a recent Taurus Declines with age IRS estimate of 37c/mile (all ages) Marginal costs about 13c/mile
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Taxes
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External Costs
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How to Regulate Full marginal cost pricing Hard to do, since must measure • Emissions • Dangerous driving • Place of driving Gas tax (possibly by vehicle type) Reg. Fees Tolls (including for use of inner city) Emissions standards Refund/disposal fee systems for toxics: oil, batteries, tires Subsidize alternative means of transport
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Tolls Proost and van Dender (1999) Brussels in the year 2005. Cordon pricing results in about 50% of the welfare gain of full marginal cost pricing. Geoghegan Substantial gains from higher tolls on bay bridge, both congestion and pollution— pollution lowest at medium speeds.
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Less Cars or Miles Increased costs result Less miles per car Less cars How much less?
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Demand for Gas Two Choice variables Miles driven Vacation choice (short run) Bus/train v. car for commute (short run) Location of job or house (long run) Car fleet About 10 years to adjust Scrappage important Many characteristics, including mpg, size, horsepower, safety, pollution
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Rebound Effect Demand Elasticity: gasoline use (G), vehicle miles traveled (VMT) miles per gallon (MPG). G=VMT/MPG . VMT is a function of c, the price per mile of travel, which in turn depends on the price p of fuel and the fuel economy, that is, c = p / MPG. ln G = ln ( VMT( ln c ) ) - ln MPG ( p ), Elasticity formula. E G.p = E VMT .c ( 1 - E MPG.p ) - E MPG. Note that increasing MPG has indirect effect of making driving cheaper.
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Elasticity from derived demand IRS estimate is about 37 cents per mile for full cost of driving 1/25 gallon per mile at $2/gallon = 8 cents A 1% increase in gasoline price is a .08/37 = .0022= 0.2% increase in cost of driving Worse if one puts in time cost E.g. 25 miles/hr at $10 per hour; 40 cents per mile!
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This note was uploaded on 08/01/2008 for the course ARE 262 taught by Professor Berck during the Spring '08 term at University of California, Berkeley.

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Gas, Energy, etc - Gas, Energy, etc Peter Berck 2003 Cost...

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