lec16 - Separate standard for cars and light trucks....

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1 Public Policy for Cars 6 Vehicle Use Externalities: Pollution Global warming Local toxins Dependence on foreign oil Congestion Roads are public good 7 Policies Gas tax Fuel efficiency standards New concept: Feebates 9 Vehicle miles traveled (VMT) Fuel efficiency of vehicle (mpg) Fuel consumption 10,000 miles / 25 mpg = 400 gallons 11 Gas Tax Revenues fund road construction and maintenance. Drivers pay in proportion to fuel use. 14 Advantages: Avoids “free-rider” problem: funds public good through related private good. Tax is roughly related to WTP for roads. Gas tax raises price toward marginal social cost.
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17 Effect of Gas tax 50% rise in gas price results in 16% decrease in fuel consumption Decrease in fuel consumption comes from: 13.5% decrease in VMT. 2.5% increase in mpg. Gas tax reduces driving more than it raises fuel efficiency. 20 Corporate Average Fuel Efficiency (CAFE) Standards The average mpg of vehicles sold by each manufacturer must meet standard.
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Unformatted text preview: Separate standard for cars and light trucks. Current standard for cars: 26.5 mpg. 21 CAFE Standard have greatly improved fuel efficiency of cars and trucks. 23 CAFE standards complement gas tax: Gas tax mostly reduces driving. CAFE standards mostly raise fuel efficiency. 26 Gas consumption still seems to be above the socially optimal level. Many fuel-efficiency technologies exist that are cost-effective to put into vehicles. Political constraints: It seems that raising the gas tax or the CAFE standards is politically infeasible. 30 New Concept: Feebates Fees on vehicles with low fuel efficiency. Rebates on vehicles with high fuel efficiency. Example: 20 mpg gets$600 fee 25 mpg gets$100 fee 28 mpg gets$100 rebate 38 mpg gets$600 rebate 33 Advantages: Revenue neutral: not a new tax. Market approach Manufacturers and consumers share burden...
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lec16 - Separate standard for cars and light trucks....

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