Working Paper: NBER ID: w19055
Authors: Mark R. Jacobsen; Arthur A. Van Benthem
Abstract: We estimate the sensitivity of scrap decisions to changes in used car values - the "scrap elasticity" - and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities will tend to produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the elasticities we estimate suggest that 13-23% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect.
Keywords: vehicle scrappage; gasoline policy; scrap elasticity; used vehicle market; fuel economy standards
JEL Codes: H23; Q52; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fuel economy policies (R48) | Scrap rates (L99) |
| Gasoline prices (L90) | Used vehicle prices (R48) |
| Gasoline prices (L90) | Scrap rates (L99) |
| Used vehicle prices (R48) | Scrap rates (L99) |