Currently working on the project:
"Scrap and Grab: Should Sweden introduce a vehicle scrappage subsidy?"
With Chandra Krishnamurthy and Rob Hart.
Project Description:
The Swedish car fleet is currently undergoing a major transformation from Internal Combustion-powered vehicles to electric and plug-in hybrid vehicles. To accomplish this, the Swedish Government has implemented two policies: the first is a feebate scheme to increase the sales of new Battery electric (BEV) and plug-in vehicles (PHEVs) and reduce the sale of new ICE vehicles; the second, more recent one, is a scrappage subsidy program that subsidizes scrappage of older ICE cars conditional on purchase of a BEV--used or new--in conjunction with the scrap. We deploy a discrete choice model to estimate the effect of these policies on both the used and new car markets. Since most cars in circulation in Sweden are not `new', the used car market is an important driver in any greening of the Swedish vehicle fleet, especially with the second policy, scrappage subsidy, explicitly targeting older used cars.
Our main objective in this paper is to construct an equilibrium model of new and used cars for Sweden, using administrative data on the universe of car registrations, mandatory vehicle inspection data (which yield mileage data), allied with matched individual and household characteristics of all vehicle owners. The demand side consists of a model of new and used car purchase and used car sale at the household level, and a supply side which, for used cars, is completely inelastic and for new cars, is of the Bertrand competition for differentiated products. An automobile is modelled as an aggregate entity at the age class-fuel type-body-style-manufacturer level, yielding between 100 and 400 models.
The model we set up accounts for consumers decision to acquire both new and used vehicles as well as sell currently-owned vehicles. We accomplish this by modeling the full suite of consumer decisions on whether to sell and/or purchase a new car as well as profit-maximizing behavior on behalf of firms, via an imperfectly competitive new car manufacturers. We accomplish this by modeling the different decisions as discrete events (which we call ``bundles'') that include which car to acquire - including no car at all- and what do with an existing vehicle. We compute the impact of three classes of counterfactual scenarios relating to the two policies, a subsidy unpaired to the purchase of a green vehicle, a subsidy on green vehicles, and the paired subsidy and scrappage scheme. Within this set of policies we also consider gradations in payment, as well as policies targeting households most likely to take advantage of the policy and minimize additionality. Our estimation, which is ongoing, will use administrative data on the entire universe of registered cars (new and old) and mandatory vehicle inspection (which provides vehicle mileage data), along with individual and household characteristics of the owners of all private vehicles.
