Working Paper: NBER ID: w26804
Authors: Stephen P. Holland; Erin T. Mansur; Andrew J. Yates
Abstract: Electric vehicles have a unique potential to transform personal transportation. We analyze the transition to electric vehicles with a dynamic model that captures the falling costs of producing electric vehicles, the decreasing pollution from electricity generation, the increasing substitutability of electric for gasoline vehicles, and the durability of the vehicle stock. Due to the external costs from pollution, inefficiencies under business as usual result from the mix of vehicles as well as the transition timing, the severity of which depends on substitutability. We calibrate the model to the US market and find the magnitude of the inefficiency is rather modest: less than 5 percent of total external costs. The optimal purchase subsidy for electric vehicles and the optimal ban on the production of gasoline vehicles both give about the same efficiency improvement, but the latter leads to a sharp increase in gasoline vehicle production just before the ban. Phasing out gasoline vehicles with a bankable production quota reduces deadweight loss substantially more than the other policies, but may lead to a very large deadweight loss if set incorrectly.
Keywords: Electric Vehicles; Gasoline Vehicles; Policy Analysis; Subsidies; Production Bans
JEL Codes: D62; H23; Q40; Q53; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Production costs (D24) | Adoption timing (C41) |
| External costs (D62) | Vehicle stock dynamics (C69) |
| Policy interventions (D78) | Market outcomes (D49) |
| Business-as-usual scenario (F47) | Adoption timing inefficiency (D15) |
| Substitutability levels (L15) | Adoption timing inefficiency (D15) |
| Optimal purchase subsidy (H21) | Efficiency improvements (D61) |
| Ban on gasoline vehicle production (L62) | Efficiency improvements (D61) |
| Bankable production quota (D25) | Deadweight loss (H21) |
| Mismanagement of bankable production quota (P13) | Deadweight loss (H21) |